Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy

George Aragon; Philip E. Strahan

doi:10.1016/j.jfineco.2011.10.004

Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy

George Aragon, Philip E. Strahan

WPC: Finance

Research output: Contribution to journal › Article › peer-review

93 Scopus citations

Abstract

Hedge funds using Lehman as prime broker faced a decline in funding liquidity after the September 15, 2008 bankruptcy. We find that stocks held by these Lehman-connected funds experienced greater declines in market liquidity following the bankruptcy than other stocks; the effect was larger for ex ante illiquid stocks and persisted into the beginning of 2009. We find no similar effects surrounding the Bear Stearns failure, suggesting that disruptions surrounding bankruptcy explain the liquidity effects. We conclude that shocks to traders' funding liquidity reduce the market liquidity of the assets that they trade.

Original language	English (US)
Pages (from-to)	570-587
Number of pages	18
Journal	Journal of Financial Economics
Volume	103
Issue number	3
DOIs	https://doi.org/10.1016/j.jfineco.2011.10.004
State	Published - Mar 2012

Keywords

Hedge fund
Market and funding liquidity

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

Access to Document

10.1016/j.jfineco.2011.10.004

Cite this

@article{626b9300f1954d6a9cec58d9962d621f,

title = "Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy",

abstract = "Hedge funds using Lehman as prime broker faced a decline in funding liquidity after the September 15, 2008 bankruptcy. We find that stocks held by these Lehman-connected funds experienced greater declines in market liquidity following the bankruptcy than other stocks; the effect was larger for ex ante illiquid stocks and persisted into the beginning of 2009. We find no similar effects surrounding the Bear Stearns failure, suggesting that disruptions surrounding bankruptcy explain the liquidity effects. We conclude that shocks to traders' funding liquidity reduce the market liquidity of the assets that they trade.",

keywords = "Hedge fund, Market and funding liquidity",

author = "George Aragon and Strahan, {Philip E.}",

year = "2012",

month = mar,

doi = "10.1016/j.jfineco.2011.10.004",

language = "English (US)",

volume = "103",

pages = "570--587",

journal = "Journal of Financial Economics",

issn = "0304-405X",

publisher = "Elsevier",

number = "3",

}

TY - JOUR

T1 - Hedge funds as liquidity providers

T2 - Evidence from the Lehman bankruptcy

AU - Aragon, George

AU - Strahan, Philip E.

PY - 2012/3

Y1 - 2012/3

N2 - Hedge funds using Lehman as prime broker faced a decline in funding liquidity after the September 15, 2008 bankruptcy. We find that stocks held by these Lehman-connected funds experienced greater declines in market liquidity following the bankruptcy than other stocks; the effect was larger for ex ante illiquid stocks and persisted into the beginning of 2009. We find no similar effects surrounding the Bear Stearns failure, suggesting that disruptions surrounding bankruptcy explain the liquidity effects. We conclude that shocks to traders' funding liquidity reduce the market liquidity of the assets that they trade.

AB - Hedge funds using Lehman as prime broker faced a decline in funding liquidity after the September 15, 2008 bankruptcy. We find that stocks held by these Lehman-connected funds experienced greater declines in market liquidity following the bankruptcy than other stocks; the effect was larger for ex ante illiquid stocks and persisted into the beginning of 2009. We find no similar effects surrounding the Bear Stearns failure, suggesting that disruptions surrounding bankruptcy explain the liquidity effects. We conclude that shocks to traders' funding liquidity reduce the market liquidity of the assets that they trade.

KW - Hedge fund

KW - Market and funding liquidity

UR - http://www.scopus.com/inward/record.url?scp=84855497956&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84855497956&partnerID=8YFLogxK

U2 - 10.1016/j.jfineco.2011.10.004

DO - 10.1016/j.jfineco.2011.10.004

M3 - Article

AN - SCOPUS:84855497956

VL - 103

SP - 570

EP - 587

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

IS - 3

ER -

Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this