In this thesis, I examine the effect that contemporaneous net fund flows has on the performance of US domestic equity mutual funds and the impact of market liquidity on this relationship. Recent research evaluating the contemporaneous relationship between net fund flows and fund returns has not separately analysed the impact of contemporaneous net fund inflows and that of contemporaneous net fund outflows on fund returns. Using a simultaneous equation estimation technique, I find that contemporaneous net fund inflows do not negatively affect returns to an equity mutual fund, regardless of the fund being a large-cap, mid-cap or small-cap fund. This finding implies that equity mutual fund managers neither face significant difficulty in placing new investments into the stock market, nor incur significant trading expenses from stock purchases with new funds. In contrast, contemporaneous net fund outflows are found to negatively affect returns to large-cap, midcap and small-cap funds. This finding implies that fund managers incur additional trading expenses from liquidity-motivated trading when faced with net fund outflows, and provides support to Edelen's (1999) theory that mutual fund performance is adversely affected by the liquidity that is provided to the investors. Further, the negative relationship between net fund outflows and fund returns is only found when there is insufficient cash in the portfolio to meet the cash demand of a net fund outflow. The relationship between contemporaneous net fund outflows and fund returns is more pronounced when the market, which a fund trades in, is less liquid. I find the negative relationship between contemporaneous net fund outflows and fund returns to be greatest for small-cap funds, followed by mid-cap funds and then large-cap funds. These results suggest that market liquidity plays a significant role in determining the magnitude of the impact of a contemporaneous net fund flow on fund return.