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Timing liquidity in the foreign exchange market: Did hedge funds do it?

Ji Luo, Kai-Hong Tee and Baibing Li

Journal of Multinational Financial Management, 2017, vol. 40, issue C, 47-62

Abstract: Risks associated with international investments such as foreign exchange (FX) exposure have recently gained increasing attention, especially those related to the liquidity conditions of the FX market after the financial crisis of 2007–2008. This paper investigates whether hedge funds time liquidity in the FX market and to what extent this contributes to their investment returns. We focus on hedge funds that invest globally and transact in the FX market. Our findings, which are statistically robust, show the liquidity timing abilities of these hedge funds may be attributed to their investing styles and the types of assets they manage, where a stronger liquidity timing ability may be demanded of systematic futures hedge funds to cushion against exposure underlying foreign assets.

Keywords: Foreign exchange market; Hedge funds; Liquidity timing ability (search for similar items in EconPapers)
JEL-codes: G1 F3 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:40:y:2017:i:c:p:47-62

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