TY - JOUR
T1 - Hedge funds as liquidity providers
T2 - Evidence from the Lehman bankruptcy
AU - Aragon, George
AU - Strahan, Philip E.
N1 - Copyright:
Copyright 2012 Elsevier B.V., All rights reserved.
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
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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 -