Journal ArticleDOI
Can Liquidity Risk Explain Diseconomies of Scale in Hedge Funds
Hany A. Shawky,Ying Wang +1 more
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TLDR
This paper examined the role of liquidity risk in explaining the relationship between asset size and hedge fund performance using data from the Lipper TASS hedge fund database over 1994-2012, and found that large funds are less able to recover from the more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small funds.Abstract:
Using data from the Lipper TASS hedge fund database over 1994-2012, we examine the role of liquidity risk in explaining the relationship between asset size and hedge fund performance While a significant negative size-performance relationship exists for all hedge funds, once we stratify our sample by liquidity risk, we find that such a relationship only exists among funds with the highest liquidity risk This result cannot be explained away by the liquidity hypothesis or the leverage effect Liquidity risk is found to be another important source of diseconomies of scale in the hedge fund industry Evidently, for high liquidity risk funds, large funds are less able to recover from the more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small fundsread more
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Book ChapterDOI
Market Liquidity: Asset Pricing with Liquidity Risk
TL;DR: In this paper, a simple equilibrium model with liquidity risk is proposed, where a security's required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with the market return.
References
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ReportDOI
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
Journal ArticleDOI
Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
Journal ArticleDOI
On Persistence in Mutual Fund Performance
TL;DR: Using a sample free of survivor bias, this paper showed that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual fund's mean and risk-adjusted returns.
Posted Content
A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
Journal ArticleDOI
Illiquidity and Stock Returns: Cross-Section and Time-Series Effects
TL;DR: In this paper, the effects of stock illiquidity on stock return have been investigated and it was shown that expected market illiquidities positively affects ex ante stock excess return (usually called risk premium) over time.