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

Finance

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

114 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

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10.1016/j.jfineco.2011.10.004

Cite this

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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.",

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Hedge funds as liquidity providers: Evidence from the Lehman bankruptcy

Abstract

Keywords

ASJC Scopus subject areas

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