How Liquid are Liquid Hedge Funds?

Many hedge funds impose minimal share restrictions and allow investors to redeem on a monthly basis or better. We find that there is significant variation in the liquidity risk exposure of these “liquid” funds. Within this group of funds, those that embrace liquidity risk outperform those that esche...

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Main Author: TEO, Melvyn
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2009
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Online Access:https://ink.library.smu.edu.sg/bnp_research/15
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=bnp_research
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spelling sg-smu-ink.bnp_research-10142018-06-13T05:02:29Z How Liquid are Liquid Hedge Funds? TEO, Melvyn Many hedge funds impose minimal share restrictions and allow investors to redeem on a monthly basis or better. We find that there is significant variation in the liquidity risk exposure of these “liquid” funds. Within this group of funds, those that embrace liquidity risk outperform those that eschew liquidity risk by 4.86 percent per year. As a consequence of the liquidity risk exposure, funds experiencing outflows subsequently earn lower returns than funds receiving inflows. The effects of flows are more pronounced for funds employing leverage, for funds with high liquidity risk exposure, and during a liquidity crunch. These results underscore the importance of funding liquidity (the ease with which traders can obtain capital) and shed light on the asset-liability mismatch in the hedge fund industry. 2009-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/bnp_research/15 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&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 liquidity risk hedge fund performance Finance and Financial Management
institution Singapore Management University
building SMU Libraries
country Singapore
collection InK@SMU
language English
topic Hedge funds
liquidity
liquidity risk
hedge fund performance
Finance and Financial Management
spellingShingle Hedge funds
liquidity
liquidity risk
hedge fund performance
Finance and Financial Management
TEO, Melvyn
How Liquid are Liquid Hedge Funds?
description Many hedge funds impose minimal share restrictions and allow investors to redeem on a monthly basis or better. We find that there is significant variation in the liquidity risk exposure of these “liquid” funds. Within this group of funds, those that embrace liquidity risk outperform those that eschew liquidity risk by 4.86 percent per year. As a consequence of the liquidity risk exposure, funds experiencing outflows subsequently earn lower returns than funds receiving inflows. The effects of flows are more pronounced for funds employing leverage, for funds with high liquidity risk exposure, and during a liquidity crunch. These results underscore the importance of funding liquidity (the ease with which traders can obtain capital) and shed light on the asset-liability mismatch in the hedge fund industry.
format text
author TEO, Melvyn
author_facet TEO, Melvyn
author_sort TEO, Melvyn
title How Liquid are Liquid Hedge Funds?
title_short How Liquid are Liquid Hedge Funds?
title_full How Liquid are Liquid Hedge Funds?
title_fullStr How Liquid are Liquid Hedge Funds?
title_full_unstemmed How Liquid are Liquid Hedge Funds?
title_sort how liquid are liquid hedge funds?
publisher Institutional Knowledge at Singapore Management University
publishDate 2009
url https://ink.library.smu.edu.sg/bnp_research/15
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=bnp_research
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