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The liquidity risk of liquid hedge funds

Country : Singapore
Department : Singapore Management University
Project Title : The liquidity risk of liquid hedge funds
Researcher : TEO, Melvyn
Keyword : Hedge funds , liquidity risk , funding liquidity , asset-liability mismatch , Finance and Financial Management , Portfolio and Security Analysis
Publisher : Institutional Knowledge at Singapore Management University
Year End : 2010
Identifier : https://ink.library.smu.edu.sg/lkcsb_research/5326 , https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=6325&context=lkcsb_research
Source : Research Collection Lee Kong Chian School Of Business
Abstract / Description :

This paper evaluates hedge funds that grantfavorable redemption terms to investors. Within this group of purportedlyliquid funds, high net inflow funds subsequently outperform low net inflowfunds by 4.79% per year after adjusting for risk. The return impact of fundflows is stronger when funds embrace liquidity risk, when market liquidity islow, and when funding liquidity, as measured by the Treasury-Eurodollar spread,aggregate hedge fund flows, and prime broker stock returns, is tight. Inkeeping with an agency explanation, funds with strong incentives to raisecapital, low manager option deltas, and no manager capital co-invested are morelikely to take on excessive liquidity risk. These results resonate with thetheory of funding liquidity by Brunnermeier and Pedersen (2009).

References

TEO, Melvyn. (2010). The liquidity risk of liquid hedge funds.  Singapore: Singapore Management University.
TEO, Melvyn. 2010. "The liquidity risk of liquid hedge funds".  Singapore: Singapore Management University.
TEO, Melvyn. "The liquidity risk of liquid hedge funds."  Singapore: Singapore Management University, 2010. Print.
TEO, Melvyn. The liquidity risk of liquid hedge funds. Singapore: Singapore Management University; 2010.

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