Publication Type

Journal Article

Version

Publisher’s Version

Publication Date

4-2009

Abstract

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.

Keywords

hedge funds, liquidity, market liquidity

Discipline

Finance and Financial Management

Research Areas

Financial Economics

Publication

Hedge Fund Insights: Newsletter of the BNP Paribus Hedge Fund Centre at SMU

First Page

2-6

Publisher

BNP Paribus Hedge Fund Centre, Singapore Management University

City or Country

Singapore

Copyright Owner and License

BNP Paribus Hedge Fund Centre, Singapore Management University

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