Share restrictions and asset pricing

Evidence from the hedge fund industry

Research output: Contribution to journalArticle

144 Citations (Scopus)

Abstract

This paper presents evidence on the relation between hedge fund returns and restrictions imposed by funds that limit the liquidity of fund investors. The excess returns of funds with lockup restrictions are approximately 4-7% per year higher than those of nonlockup funds. The average alpha of all funds is negative or insignificant after controlling for lockups and other share restrictions. Also, a negative relation is found between share restrictions and the liquidity of the fund's portfolio. This suggests that share restrictions allow funds to efficiently manage illiquid assets, and these benefits are captured by investors as a share illiquidity premium.

Original languageEnglish (US)
Pages (from-to)33-58
Number of pages26
JournalJournal of Financial Economics
Volume83
Issue number1
DOIs
StatePublished - Jan 2007

Fingerprint

Industry
Asset pricing
Hedge funds
Investors
Liquidity
Assets
Premium
Illiquidity
Excess returns

Keywords

  • Hedge fund performance
  • Liquidity
  • Lockups
  • Transactions costs

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Share restrictions and asset pricing : Evidence from the hedge fund industry. / Aragon, George.

In: Journal of Financial Economics, Vol. 83, No. 1, 01.2007, p. 33-58.

Research output: Contribution to journalArticle

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