Matti Suominen's paper accepted in Review of Finance
26.06.2013
Article “Do hedge funds supply or demand liquidity?” by Petri Jylhä (Imperial College), Kalle Rinne (Luxembourg School of Finance), and Matti Suominen has been accepted for publication in the Review of Finance.
Abstract
Regressing hedge funds’ returns on returns to a long-short contrarian trading strategy, a measure of the returns from providing liquidity, we find that hedge funds typically supply liquidity in the stock market. In the cross-section, strict redemption restrictions and large fund size increase funds’ propensity to supply liquidity. In time-series, poor market liquidity and good funding conditions increase funds’ propensity to supply liquidity. Although the hedge funds typically supply liquidity, during crises they demand liquidity. We also find that increases in the amount of speculative capital improve market liquidity and reduce the amount of short-term return reversals and volatility.
Information:
Download the article here.