Reference : The evolving beta-liquidity relationship of hedge funds
Scientific journals : Article
Business & economic sciences : Finance
Finance
http://hdl.handle.net/10993/31020
The evolving beta-liquidity relationship of hedge funds
English
Stefanova, Denitsa mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Siegmann, Arjen [VU University Amsterdam]
2017
Journal of Empirical Finance
Elsevier Science
44
286-303
Yes (verified by ORBilu)
0927-5398
[en] Hedge funds ; Market timing ; Liquidity timing ; Changepoint regression ; Dynamic strategies
[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.
http://hdl.handle.net/10993/31020
10.1016/j.jempfin.2017.04.002

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