The Liquidity Risk of Liquid Hedge Funds
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79 percent per year after adjusting for risk. The return impact of fund flows is stronger when f...
Saved in:
Main Author: | |
---|---|
Format: | text |
Language: | English |
Published: |
Institutional Knowledge at Singapore Management University
2011
|
Subjects: | |
Online Access: | https://ink.library.smu.edu.sg/bnp_research/12 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1009&context=bnp_research |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Institution: | Singapore Management University |
Language: | English |
id |
sg-smu-ink.bnp_research-1009 |
---|---|
record_format |
dspace |
spelling |
sg-smu-ink.bnp_research-10092018-03-21T01:48:09Z The Liquidity Risk of Liquid Hedge Funds TEO, Melvyn This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79 percent per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the TED spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are more likely to take on excessive liquidity risk. These results resonate with the theory of funding liquidity by Brunnermeier and Pedersen (2009). 2011-04-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/bnp_research/12 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1009&context=bnp_research http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection BNP Paribas Hedge Fund Centre eng Institutional Knowledge at Singapore Management University Hedge funds Liquidity risk Funding liquidity Market liquidity Redemption gates Finance and Financial Management Portfolio and Security Analysis |
institution |
Singapore Management University |
building |
SMU Libraries |
country |
Singapore |
collection |
InK@SMU |
language |
English |
topic |
Hedge funds Liquidity risk Funding liquidity Market liquidity Redemption gates Finance and Financial Management Portfolio and Security Analysis |
spellingShingle |
Hedge funds Liquidity risk Funding liquidity Market liquidity Redemption gates Finance and Financial Management Portfolio and Security Analysis TEO, Melvyn The Liquidity Risk of Liquid Hedge Funds |
description |
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79 percent per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the TED spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are more likely to take on excessive liquidity risk. These results resonate with the theory of funding liquidity by Brunnermeier and Pedersen (2009). |
format |
text |
author |
TEO, Melvyn |
author_facet |
TEO, Melvyn |
author_sort |
TEO, Melvyn |
title |
The Liquidity Risk of Liquid Hedge Funds |
title_short |
The Liquidity Risk of Liquid Hedge Funds |
title_full |
The Liquidity Risk of Liquid Hedge Funds |
title_fullStr |
The Liquidity Risk of Liquid Hedge Funds |
title_full_unstemmed |
The Liquidity Risk of Liquid Hedge Funds |
title_sort |
liquidity risk of liquid hedge funds |
publisher |
Institutional Knowledge at Singapore Management University |
publishDate |
2011 |
url |
https://ink.library.smu.edu.sg/bnp_research/12 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1009&context=bnp_research |
_version_ |
1681132693139488768 |