Identifying Liquidity Risk in Various Hedge Fund Strategies

• Main Authors: Wen-Hsien Wang, 王文賢
• Other Authors: Yueh-Neng Lin
• Format: Others
• Language: en_US
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/hnt56d

碩士 === 國立中興大學 === 財務金融系所 === 101 === Hedge funds have been existed for more than half a century. However, not until the surprising collapse of Long Term Capital Management (LTCM) during Asian Financial Crisis in year 1997 did academia start to shed light on the hedge fund industry, which is deemed to be uncorrelated with the volatility of traditional investing vehicles. Most studies on hedge funds attribute the reason of hedge fund collapse to liquidity risk. This thesis, based on the extant literature, moves on to investigate and detect the liquidity risk in various hedge fund strategies. Evidence is executed with the method suggested by Getmansky, Lo, and Makarov (2004), which identifies the liquidity risk through analyzing the current, 1-lagged, and 2-lagged returns of hedge funds, and also involves the liquidity factor measured by Pa ́stor and Stambaugh (2003) as the control variable. This thesis also runs the multi-factor regression for liquidity risk, along with other hedge fund risk factors, and hedge fund returns. In this way, the risks in the returns of various hedge fund strategies are identified as well. The benefit of the operation not only can detect the potential risk about hedge fund return under various strategies, but also can find the influences of liquidity on the hedge funds during the crises. The main contribution of this thesis is the identification of liquidity risk in various hedge fund strategies covering the financial crisis in year 1997、1998、2002、2008.