Funding Liquidity Risk and the Dynamics of Hedge Fund Lockups
نویسندگان
چکیده
We exploit the expiring nature of hedge fund lockups to create a dynamic, fund-level proxy of funding liquidity risk. In contrast to the prior literature, our measure allows us to identify how within-fund changes in funding liquidity risk are associated with performance and risk taking. Lockup funds with lower funding liquidity risk take more tail risk and have better risk-adjusted performance, suggesting reduced funding liquidity risk enables funds to better capitalize on risky mispricing. Surprisingly, lockup funds outperform non-lockup funds even when controlling for restricted capital, suggesting that a portion of the lockup premium is attributable to a “lockup-fixed effect”. JEL classification: G10, G23
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