ریسک نقدینگی صندوق های تامینی وجوه نقد
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13715||2011||21 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 100, Issue 1, April 2011, Pages 24–44
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79% per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the Treasury-Eurodollar spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are more likely to take on excessive liquidity risk. These results resonate with the theory of funding liquidity
If you thought getting into a hedge fund was tough, try getting out of one. Wall Street Journal, April 10, 2008 During the recent financial crisis, the use of redemption gates by hedge fund managers caught many investors by surprise. Gates allow hedge funds to limit the percentage of fund capital that can be redeemed by investors at any time. Hedge funds that raised gates include the large and hitherto successful Citadel, Tudor Investment Corp, Fortress Investment Group, and D.E. Shaw.1 Fund managers argue that gates protect investors as they permit funds to liquidate in an orderly fashion and avoid selling assets at fire sale prices (Pulvino, 1998 and Mitchell et al., 2007). Investors contend that fund managers who raised gates, especially those who continue to levy management fees on gated capital, care more about business continuity than about investor protection. Underlying all this are concerns that the hedge fund industry suffers from an asset–liability mismatch.2 Investors worry that a disparity could exist between the liquidity that hedge funds say they can provide and the liquidity of their underlying assets. Motivated by these events, I study hedge funds that offer favorable redemption terms, i.e., monthly redemptions or better. These funds provide a fertile ground to search for instances in which hedge funds overpromise in terms of liquidity. I ask the following: How liquid are these liquid hedge funds? Do these hedge funds take on excessive liquidity risk? That is, are they forced to sell assets at fire sale prices in response to investor redemptions? If so, what drives the excessive liquidity risk-taking? To proxy for excessive liquidity risk, I use the impact of investor demand shocks on fund returns. In doing so, I leverage on the Brunnermeier and Pedersen (2009) concept of a loss spiral, a concept motivated by Shleifer and Vishny's (1992) work on asset fire sales. In a loss spiral, initial losses by speculators precipitate investor redemptions that force speculators to sell assets at fire sale prices, thereby inducing further investor withdrawals. According to Brunnermeier and Pedersen (2009), this interaction between market liquidity (the ease with which assets can be traded) and funding liquidity (the ease with which traders can obtain financing) can explain why liquidity can suddenly dry up, co-moves with the market, and has commonalities across securities. A major channel through which this interaction can occur is via hedge funds. Anecdotal evidence suggests that this channel has become more important as several investment banks have scaled back or wound down their proprietary trading operations following the 2008 financial crisis.3 The empirical findings are striking. Substantial variation exists in the liquidity risk of these liquid hedge funds. Within this group of funds, the portfolio of funds with high liquidity risk exposure outperforms the portfolio of funds with low liquidity risk exposure by 5.80% per year (t-statistic=2.26). To measure systematic liquidity risk exposure, 4 I use fund beta with respect to the Pástor and Stambaugh (2003) market-wide liquidity measure (henceforth PS measure). 5 The PS measure is particularly suited for gauging liquidity risk as it is based on temporary price changes accompanying order flow. 6 I account for risks that are not directly related to liquidity with the Fung and Hsieh (2004) seven-factor model. I adjust the bond factors from the Fung and Hsieh (2004) model appropriately for duration so that they represent returns on traded portfolios. 7 After adjusting for co-variation with these factors, the spread is 6.11% per year (t-statistic=2.58). The relation between liquidity risk exposure and fund performance also manifests in cross-sectional regressions. Controlling for other hedge fund characteristics, a one standard deviation increase in liquidity risk exposure is associated with a 2.20% per annum (t-statistic=2.90) surge in annual returns. These results reinforce those of Sadka (2010) who shows that liquidity risk, as measured by the Sadka (2006) information-driven, permanent-variable component of price impact, can explain the cross-sectional variation in hedge fund returns. Because the price impact of asset fire sales, as envisaged by Shleifer and Vishny (1992), is transitory and unrelated to information, I argue that the PS measure is more relevant for my purposes. The aforementioned results suggest that hedge funds that grant favorable redemption terms differ significantly in terms of their appetites for liquidity risk. Moreover, the rewards for bearing liquidity risk are high. But do these hedge funds take on excessive liquidity risk? I show that liquidity risk exposure parlays into problems for hedge funds when investors deploy and redeem capital. On average, hedge funds that experience high inflows subsequently outperform hedge funds that experience low inflows by 4.79% per year (t-statistic=4.70) after accounting for co-variation with the factors from the Fung and Hsieh (2004) model. These results are robust to adjustments for backfill and incubation bias, fund fees, and thin trading-induced serial correlation in fund returns ( Getmansky, Lo, and Makarov, 2004). Consistent with a fire sale story, liquidity risk amplifies the effects of capital flows on fund returns, both in the cross-section and inter-temporally. Within the fund quintile with the highest exposure to liquidity risk, the flow portfolio abnormal spread is 4.97% per year. Conversely, within the fund quintile with the lowest exposure to liquidity risk, the spread is 2.84% per year. When the markets are bereft of liquidity, i.e., when the PS measure falls below its 20th percentile level, the flow portfolio abnormal spread is 9.13% per year. When markets are flushed with liquidity, i.e., when the PS measure rises above its 80th percentile level, the spread is only −1.48% per year. In addition, the spread is particularly large for months that are anecdotally associated with sharp contractions in market liquidity. For example, in August 1998, during the Long-Term Capital Management (LTCM) crisis, the annualized abnormal spread was 24.57%. More recently, in March 2008 with the demise of Bear Stearns and in September 2008 with the bankruptcy of Lehman Brothers, the annualized abnormal spreads were 8.57% and 6.37%, respectively. In line with Brunnermeier and Pedersen (2009), individual hedge fund flows are more impactful when economy-wide funding liquidity is tight. I show that the abnormal flow portfolio spread is higher when the TED (Treasury-Eurodollar) spread is wide, net repo volume is low, prime broker stock returns are poor, and aggregate hedge fund flows are sparse.8 These results also resonate with Shleifer and Vishny (1992). When aggregate funding liquidity is tight, fire sales are more likely because there are few ready buyers when hedge funds need to sell their specialized assets (e.g., distressed debt, convertible bonds, etc.). Leverage also heightens the impact of fund flow on returns. The flow portfolio abnormal spread for funds employing leverage is 1.6 times that for funds eschewing leverage. Moreover, cross-sectional regression estimates indicate that the findings are driven more by outflows than by inflows. These conditional results are more in keeping with the fire sale story than with the Gruber (1996) and Zheng (1999) smart money effect. It is hard to understand why investors would be more prescient for leveraged funds, for funds that embrace liquidity risk, during a liquidity crunch, and when redeeming capital. What drives excessive liquidity risk-taking? If excessive liquidity risk primarily benefits managers at the expense of investors, it should be related to fund agency problems. Hence, I ask whether the return impact of flows is stronger for funds that are prone to agency problems. I posit that small funds, funds with low-powered managerial incentives, and funds serviced by multiple prime brokers are most susceptible to agency issues. Small funds tend to face greater pressures to raise capital than do large funds, which could well be grappling with capacity constraints. Moreover, according to Goetzmann, Ingersoll, and Ross (2003) and Agarwal, Daniel, and Naik (2009), incentive fees, manager option deltas, and manager co-investment help align the interests of fund managers with those of their investors.9 In addition, by engaging multiple prime brokers, a fund prevents prime brokers from effectively monitoring counterparty risk because each prime broker is not privy to its entire portfolio. In keeping with an agency explanation, I find that the flow portfolio spread is most pronounced for funds with few assets under management, low incentive fees, depressed manager option deltas, no manager capital co-invested, and multiple prime brokers. Overall, the results suggest that an asset–liability mismatch exists in the hedge fund industry. In doing so, I build on the following themes. Coval and Stafford (2007) show that coordinated demand shocks by mutual funds experiencing investor outflows create substantial price pressure in the stocks that they hold. Mitchell, Pedersen, and Pulvino (2007) find that, in 2005, large capital redemptions by investors in convertible arbitrage funds caused the prices of convertible bonds to deviate significantly from theoretical values. I extend their work and show that, as a result of excessive liquidity risk-taking at hedge funds, even uncoordinated investor demand shocks can engender fire sales at hedge funds. Bollen and Poole, 2008 and Bollen and Poole, 2009 contend that hedge fund managers avoid reporting losses to attract and retain investors. I show that hedge funds, especially those that are susceptible to agency issues, tend to load up excessively on liquidity risk so as to generate impressive returns and draw investor capital. Aragon (2007) argues that share restrictions allow hedge fund managers to efficiently manage illiquid assets and those benefits are captured by investors in the form of a share illiquidity premium. My analysis suggests that hedge funds do not always choose to use share restrictions to manage systematic liquidity risk exposure. This paper also adds to recent work that relates liquidity to hedge funds. Patton and Ramadorai (2010) find that some hedge funds condition their non-liquidity risk exposures on daily measures of market liquidity. Cao, Chen, Liang, and Lo (2010) argue that hedge funds can successfully time their liquidity risk exposures. Aragon and Strahan (2010) demonstrate that the collapse of Lehman Brothers triggered a funding liquidity crisis that caused stocks traded by Lehman-connected funds to experience declines in market liquidity. Boyson, Stahel, and Stulz (2010) examine the effects of funding liquidity shocks on contagion across hedge fund styles. This paper builds on seminal work by Sadka (2010), who shows that liquidity risk can explain the cross-section of hedge fund returns. Unlike these papers, I focus on excessive liquidity risk-taking by hedge funds and how that is related to fire sales and agency problems. My findings indicate that, ex post, redemption gates are helpful in preventing further flow-induced deterioration in hedge fund performance. However, ex ante, gates could encourage hedge funds, especially those that are prone to agency problems, to take on more liquidity risk than they should, exacerbating the asset–liability mismatch. The paper proceeds as follows. Section 2 outlines the data and methodology used. Section 3 presents tests of hedge fund liquidity, and Section 4 offers tests of hedge fund flows. Section 5 explores the relationship between agency problems and excessive liquidity risk. Section 6 reports results from robustness tests, including a correction for sample selection bias. Section 7 concludes.
نتیجه گیری انگلیسی
In a world where assets and liabilities are perfectly matched, hedge fund share restrictions permit funds to liquidate in an orderly fashion and avoid fire sales. Redemption gates are redundant. This paper challenges thisview. Ishow that,giventheirredemptionterms,hedge funds often take on greater liquidity risk exposure thanthey should. They do so as the rewards to bearing liquidity risks are substantial. Within the group of funds that offer favorable redemption terms to their investors, those that embrace liquidity risk harvest substantially higher returns than those that shun liquidity risk. As a consequence of the asset–liability mismatch, for this same group of funds, capital shocks by investors result in significant but tran- sientchangesto hedgefund returns.Fundsthatexperience high net inflows subsequently outperform funds that experience low net inflows by 4.79% per year after adjust- ing for risk. Consistent with a fire sale story, the impact of fund flows is more pronounced for funds that take on greater liquidityrisk, forfunds that employleverage, when marketliquidityislow,andwhenfundingliquidityistight. Moreover, excessive liquidity risk-taking appears to be prevalent amongst funds that are most susceptible to agency problems, suggesting that such behavior benefits fund managers at the expense of investors. Therefore, ex post, given the liquidity risk exposures of hedge funds, redemption gates are helpful as they allow hedge funds to avoid the deleterious effects of asset fire sales. However, exante,theoptiontoraisegatescouldironicallyencourage hedge funds to take on greater liquidity risk and, in so doing, exacerbate the asset–liability mismatch