The Impact of Hedge Funds on Asset Markets

Mathias S. Kruttli, Andrew Patton and Tarun Ramadorai

The Review of Asset Pricing Studies, 2015, vol. 5, issue 2, 185-226

Abstract: We construct a simple measure of the aggregate illiquidity of hedge fund portfolios, based on the cross-sectional average first-order autocorrelation coefficient of hedge fund returns, and show that it has strong and robust in- and out-of-sample forecasting power for 72 portfolios of international equities, U.S. corporate bonds, and currencies over the 1994 to 2013 period. The forecasting ability of hedge fund illiquidity for asset returns is in most cases greater than, and provides independent information relative to, well-known predictive variables. We rationalize these findings using a simple equilibrium model, in which hedge funds provide liquidity in asset markets.

JEL-codes: G11 G12 G14 G23 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Impact of Hedge Funds on Asset Markets (2014)
Working Paper: The Impact of Hedge Funds on Asset Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:5:y:2015:i:2:p:185-226.

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