Article (Scientific journals)
The evolving beta-liquidity relationship of hedge funds
Stefanova, Denitsa; Siegmann, Arjen
2017In Journal of Empirical Finance, 44, p. 286-303
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Keywords :
Hedge funds; Market timing; Liquidity timing; Changepoint regression; Dynamic strategies
Abstract :
[en] Hedge funds are known to have liquidity-timing capability, but this might be conditional on aggregate market conditions. To test this, we analyze changes in the relation between hedge funds' stock market exposure and aggregate stock market liquidity. Employing an optimal changepoint approach, we find that equity-oriented hedge funds display a significant shift in liquidity-timing behavior after the major market microstructure changes in the year 2000. The shift is from a negative relation between market beta and liquidity towards a positive relation. We rule out a mechanistic explanation of the results by computing the returns to several familiar risk arbitrage strategies, finding in them no evidence of a similar shift in liquidity timing.
Disciplines :
Finance
Author, co-author :
Stefanova, Denitsa  ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF)
Siegmann, Arjen;  VU University Amsterdam
External co-authors :
yes
Language :
English
Title :
The evolving beta-liquidity relationship of hedge funds
Publication date :
2017
Journal title :
Journal of Empirical Finance
ISSN :
0927-5398
Publisher :
Elsevier Science
Volume :
44
Pages :
286-303
Peer reviewed :
Peer Reviewed verified by ORBi
Focus Area :
Finance
Available on ORBilu :
since 04 May 2017

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