Publication Type
Conference Paper
Publication Date
8-2010
Abstract
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).
Keywords
Hedge funds, liquidity risk, funding liquidity, asset-liability mismatch
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
2010 European Finance Association Meetings
First Page
1
Last Page
53
City or Country
Frankfurt
Citation
TEO, Melvyn.
The liquidity risk of liquid hedge funds. (2010). 2010 European Finance Association Meetings. 1-53.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5326
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.