Hedge Fund Alphas: Do They Reflect Managerial Skills or Mere Compensation for Liquidity Risk Bearing?

2010 ◽  
Author(s):  
Rajna Gibson ◽  
Songtao Wang
Keyword(s):  
Hedge Fund ◽  
Liquidity Risk ◽  
Managerial Skills

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

2013 ◽  
Vol 48 (1) ◽  
pp. 219-244 ◽  
Author(s):  
Rajna Gibson Brandon ◽  
Songtao Wang
Keyword(s):  
Empirical Study ◽  
Emerging Markets ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Liquidity Risk ◽  
Equity Market ◽  
Return Predictability ◽  
Superior Performance ◽  
Managerial Skills ◽  
Risk Return

AbstractThis 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 incorporate predictability in managerial skills generate superior performance. This outperformance 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.

Funding Liquidity Risk and the Dynamics of Hedge Fund Lockups

2016 ◽  
Author(s):  
Adam L. Aiken ◽  
Christopher P. Clifford ◽  
Jesse A. Ellis ◽  
Qiping Huang
Keyword(s):  
Hedge Fund ◽  
Liquidity Risk ◽  
Funding Liquidity

Can Liquidity Risk Explain Diseconomies of Scale in Hedge Funds?

2017 ◽  
Vol 07 (02) ◽  
pp. 1750002
Author(s):  
Hany A. Shawky ◽  
Ying Wang
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Liquidity Risk ◽  
Fund Performance ◽  
Diseconomies Of Scale ◽  
Liquidity Crises ◽  
Using Data ◽  
Asset Size ◽  
Hedge Fund Performance

Using data from the Lipper TASS hedge fund database over the period 1994–2012, we examine the role of liquidity risk in explaining the relation between asset size and hedge fund performance. While a significant negative size-performance relation 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. 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 relatively more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small funds.

Funding Liquidity Risk and the Dynamics of Hedge Fund Lockups

2020 ◽  
pp. 1-29
Author(s):  
Adam L. Aiken ◽  
Christopher P. Clifford ◽  
Jesse A. Ellis ◽  
Qiping Huang
Keyword(s):  
Hedge Funds ◽  
Regression Discontinuity ◽  
Hedge Fund ◽  
Liquidity Risk ◽  
Causal Link ◽  
Regression Discontinuity Design ◽  
Control Variables ◽  
Funding Liquidity ◽  
And Control ◽  
Funding Risk

Abstract We exploit the expiring nature of hedge fund lockups to create a new measure of funding liquidity risk that varies within funds. We find that hedge funds with lower funding risk generate higher returns, and this effect is driven by their increased exposure to equity-mispricing anomalies. Our results are robust to a variety of sampling criteria, variable definitions, and control variables. Further, we address endogeneity concerns in various ways, including a placebo approach and regression discontinuity design. Collectively, our results support a causal link between funding risk and the ability of managers to engage in risky arbitrage.

Characteristics of Successful Hedge Fund Managers

2017 ◽  
Author(s):  
Ashrafee T. Hossain ◽  
Samir Saadi ◽  
Maxim Treff
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Hedge Fund ◽  
Fund Performance ◽  
Managerial Skills ◽  
Fund Managers ◽  
Key Characteristics ◽  
Strong Relation ◽  
History Of ◽  
Hedge Fund Performance

Managerial skill is a key determinant of a hedge fund’s success. Identifying the key characteristics of successful managers is important because of a strong relation between hedge fund performance and managerial skills. This chapter provides a brief history of some highly successful hedge fund managers as well as a discussion of the different demands of the hedge fund industry versus other pooled investments, such as mutual funds. Furthermore, the chapter examines the differences between hedge fund and mutual fund managers involving return expectations, performance measures, and compensation. Next the chapter explores the key characteristics that hedge fund managers should possess to be successful. Although some characteristics are easy to identify and measure, others are less so. The chapter also includes a detailed discussion of social versus human capital.

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