Abstract

http://ssrn.com/abstract=1550240
 
 

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Hedge Fund Stock Trading in the Financial Crisis of 2007-2009


Itzhak Ben-David


Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Francesco A. Franzoni


University of Lugano; Swiss Finance Institute

Rabih Moussawi


University of Pennsylvania - The Wharton School

September 14, 2011

AFA 2011 Denver Meetings Paper
Charles A. Dice Center Working Paper No. 2010-2
Fisher College of Business Working Paper No. 2010-03-002
Swiss Finance Institute Research Paper No. 11-08

Abstract:     
Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008Q3-Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place in volatile and liquid stocks. In comparison, redemptions and stock sales for mutual funds were not as severe. We show that hedge fund investors withdraw capital three times as intensely as mutual fund investors do in response to poor returns. We relate this stronger sensitivity to losses to share liquidity restrictions and institutional ownership in hedge funds.

Number of Pages in PDF File: 83

Keywords: Hedge funds, Liquidity, Aggregate Liquidity, Arbitrage, Funding Liquidity, Illiquidity, Liquidity Crisis, Crisis Stock Market Crash, Limits to Arbitrage, Liquidity Spirals, Short Selling, Short Sellers, 13-F, TASS, Uncertainty, Equity Market, Investment Strategy, Mutual Funds, Retail Investors

JEL Classification: G01, G12, G14, G23

working papers series


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Date posted: February 9, 2010 ; Last revised: September 14, 2011

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Moussawi, Rabih, Hedge Fund Stock Trading in the Financial Crisis of 2007-2009 (September 14, 2011). AFA 2011 Denver Meetings Paper; Fisher College of Business Working Paper No. 2010-03-002; Swiss Finance Institute Research Paper No. 11-08. Available at SSRN: http://ssrn.com/abstract=1550240 or http://dx.doi.org/10.2139/ssrn.1550240

Contact Information

Itzhak Ben-David (Contact Author)
Ohio State University - Fisher College of Business, Finance Department ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/
Francesco A. Franzoni
University of Lugano ( email ) ( email )
University of Lugano
Via G. Buffi 13
Lugano, 6904
Switzerland
Swiss Finance Institute ( email ) ( email )
University of Lugano
Via G. Buffi 13
Lugano, 6904
Switzerland
Rabih Moussawi
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
216 Vance Hall
Philadelphia, PA 19104-6365
United States
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