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The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79 percent per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the TED spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are …
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79% per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the Treasury-Eurodollar spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are more …
Trading Your Neighbor's Etfs: Competition Or Fragmentation?, Beatrice Boehmer, Ekkehart Boehmer
Trading Your Neighbor's Etfs: Competition Or Fragmentation?, Beatrice Boehmer, Ekkehart Boehmer
Research Collection Lee Kong Chian School Of Business
On July 31, 2001, for the first time in its history, the New York Stock Exchange (NYSE) began trading three unlisted securities. The DIA, SPY, and QQQ are the most actively traded Exchange Traded Funds (ETFs) and are listed on the American Stock Exchange. On April 15, 2002 another 27 ETFs followed. These two events provide a unique experiment for studying the impact of a new entrant on market quality. In contrast to recently revived concerns about the adverse impact of market fragmentation, we document that the NYSE entry leads to a dramatic improvement in liquidity that we attribute to …