Reference : Do Hedge Funds Supply or Demand Liquidity?
Scientific journals : Article
Business & economic sciences : Finance
http://hdl.handle.net/10993/5927
Do Hedge Funds Supply or Demand Liquidity?
English
Jylhä, Petri [Imperial College London]
Rinne, Kalle mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Suominen, Matti mailto [Aalto University School of Business ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Jul-2014
Review of Finance
Oxford University Press
18
4
1259-1298
Yes (verified by ORBilu)
International
1572-3097
1573-692X
[en] Regressing hedge funds’ returns on returns to a long–short contrarian trading strategy, a measure of the returns from providing liquidity, we find that hedge funds typically supply liquidity in the stock market. In the cross-section, strict redemption restrictions and large fund size increase funds’ propensity to supply liquidity. In time series, poor market liquidity and good funding conditions increase funds’ propensity to supply liquidity. Although the hedge funds typically supply liquidity, during crises they demand liquidity. We also find that increases in the amount of speculative capital improve market liquidity and reduce the amount of short-term return reversals and volatility.
http://hdl.handle.net/10993/5927
10.1093/rof/rft033

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