TY - JOUR
T1 - The evolving beta-liquidity relationship of hedge funds
AU - Siegmann, Arjen
AU - Stefanova, Denitsa
PY - 2017/12
Y1 - 2017/12
N2 - Hedge funds are known to have liquidity-timing capability, but this might be conditional on aggregate market conditions. To test this, we analyze changes in the relation between hedge funds' stock market exposure and aggregate stock market liquidity. Employing an optimal changepoint approach, we find that equity-oriented hedge funds display a significant shift in liquidity-timing behavior after the major market microstructure changes in the year 2000. The shift is from a negative relation between market beta and liquidity towards a positive relation. We rule out a mechanistic explanation of the results by computing the returns to several familiar risk arbitrage strategies, finding in them no evidence of a similar shift in liquidity timing.
AB - Hedge funds are known to have liquidity-timing capability, but this might be conditional on aggregate market conditions. To test this, we analyze changes in the relation between hedge funds' stock market exposure and aggregate stock market liquidity. Employing an optimal changepoint approach, we find that equity-oriented hedge funds display a significant shift in liquidity-timing behavior after the major market microstructure changes in the year 2000. The shift is from a negative relation between market beta and liquidity towards a positive relation. We rule out a mechanistic explanation of the results by computing the returns to several familiar risk arbitrage strategies, finding in them no evidence of a similar shift in liquidity timing.
KW - Changepoint regression
KW - Dynamic strategies
KW - Hedge funds
KW - Liquidity timing
KW - Market timing
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U2 - 10.1016/j.jempfin.2017.04.002
DO - 10.1016/j.jempfin.2017.04.002
M3 - Article
AN - SCOPUS:85018742798
SN - 0927-5398
VL - 44
SP - 286
EP - 303
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -