Liquidity and Hedge Funds
Market liquidity profoundly impacts hedge funds. Funds trading illiquid securities earns significant risk premium, report smoother returns, can better leverage on information asymmetries, and grapple with stronger capacity constraints. Importantly, the funding liquidity of hedge funds, or their ease...
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2009
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| Online Access: | https://ink.library.smu.edu.sg/bnp_research/14 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1013&context=bnp_research |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | Market liquidity profoundly impacts hedge funds. Funds trading illiquid securities earns significant risk premium, report smoother returns, can better leverage on information asymmetries, and grapple with stronger capacity constraints. Importantly, the funding liquidity of hedge funds, or their ease of obtaining financing, can have a significant effect on the market liquidity of the securities they trade in, creating a downward liquidity spiral during economic downturns. We review the academic literature and deliver insights that resonate with recent market events. |
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