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Title

Liquidity Risk, Return Predictability, and Hedge Funds’ Performance: An Empirical Study

Authors
Wang, Songtao
Published in Journal of Financial and Quantitative Analysis. 2013, vol. 48, no. 01, p. 219-244
Abstract This article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios. Similarly to Avramov, Kosowski, Naik, and Teo (2007),(2011), we observe that, before accounting for the effect of liquidity risk, hedge fund portfolios that incor- porate predictability in managerial skills generate superior performance. This outperfor-mance disappears or weakens substantially for most emerging markets, event-driven, and long/short hedge fund portfolios once we account for liquidity risk. Moreover, we show that the equity market-neutral and long/short hedge fund portfolios’ “alphas” also entail rents for their service as liquidity providers. These results hold under various robustness tests.
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GIBSON BRANDON, Rajna Nicole, WANG, Songtao. Liquidity Risk, Return Predictability, and Hedge Funds’ Performance: An Empirical Study. In: Journal of Financial and Quantitative Analysis, 2013, vol. 48, n° 01, p. 219-244. https://archive-ouverte.unige.ch/unige:85439

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Deposited on : 2016-07-25

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