Financial Conglomerate Affiliation and Hedge Funds’ Countercyclical Risk Taking

Francesco A. Franzoni and Mariassunta Giannetti
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Francesco A. Franzoni: University of Lugano; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute

No 15-68, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We show that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding and lower flow-performance sensitivity than other funds even though they are less likely to impose impediments on withdrawals. Arguably due to their privileged access to funding, during periods of financial turmoil, FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds. During good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk factors. Thus, FCAHFs appear to perform a stabilizing function for the financial system.

Keywords: Hedge Funds; Financial Conglomerates; Volker Rule; Liquidity Provision (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2015-12, Revised 2016-05
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1568

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