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Liquidity timing skills for hedge funds

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thesis
posted on 12.10.2015, 10:55 authored by Ji Luo
In the thesis, we investigate whether hedge fund managers have liquidity timing skills in the fixed income market, foreign exchange market and commodity market, respectively. Managers with the liquidity timing skills can strategically adjust hedge funds exposure to the target financial market based on their forecasts about the future changes in market liquidity. We find empirical evidence that hedge funds in certain categories have the skills to time the liquidity levels in the fixed income market, foreign exchange market and commodity market. We conduct a range of robustness tests, which show that hedge funds still exhibit liquidity timing skills after controlling for the factors that may affect timing ability. In particular, our findings are robust to the usage of leverage, funding constraints, investor redemption restrictions, hedge funds trades on market liquidity, financial crisis, hedge fund data biases, market return and volatility timing, liquidity risk factor, systematic stale pricing and option factors. We also conduct bootstrap analysis to ensure the results are not dependent on the normality assumption. Our investigation is helpful to understand the importance of market liquidity to hedge funds professional portfolio management.

Funding

none

History

School

  • Business and Economics

Department

  • Business

Publisher

© Ji Luo

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2015

Notes

A Doctoral Thesis. Submitted in partial fulfilment of the requirements for the award of Doctor of Philosophy of Loughborough University.

Language

en