Year: 2013
Type: article
Abstract: This article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios. Similarly to Avramov, Kosowski, Naik, and Teo (2007), (2011), we observe that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills generate superior performance. This outperformance disappears or weakens substantially for most emerging markets, event-driven, and long/short hedge fund portfolios once we account for liquidity risk. Moreover, we show that the equity market-neutral and long/short hedge fund portfolios’ “alphas” also entail rents for their service as liquidity providers. These results hold under various robustness tests.
Authors: Rajna Gibson Brandon, Songtao Wang
Institutions: University of Geneva, University of Zurich
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W1992758702