publication . Article . 2013

Do Hedge Funds Supply or Demand Liquidity

Petri Jylhä;
Open Access
  • Published: 10 Aug 2013 Journal: Review of Finance, volume 18, pages 1,259-1,298 (issn: 1572-3097, eissn: 1573-692X, Copyright policy)
  • Publisher: Oxford University Press (OUP)
Abstract
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 ...
Subjects
Medical Subject Headings: health care economics and organizations
free text keywords: Finance
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