Do Hedge Funds Supply or Demand Liquidity?

Reference : Do Hedge Funds Supply or Demand Liquidity?


	Document type :	Scientific journals : Article
	Discipline(s) :	Business & economic sciences : Finance
	To cite this reference:	http://hdl.handle.net/10993/5927

Title :	Do Hedge Funds Supply or Demand Liquidity?
Language :	English
Author, co-author :	Jylhä, Petri [Imperial College London]
	Rinne, Kalle [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
	Suominen, Matti [Aalto University School of Business ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Publication date :	Jul-2014
Journal title :	Review of Finance
Publisher :	Oxford University Press
Volume :	18
Issue/season :	4
Pages :	1259-1298
Peer reviewed :	Yes (verified by ORBi^lu)
Audience :	International
ISSN :	1572-3097
e-ISSN :	1573-692X
Abstract :	[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.
Permalink :	http://hdl.handle.net/10993/5927
DOI :	10.1093/rof/rft033

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