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Hedge Fund Leverage

54 Pages Posted: 2 Aug 2010 Last revised: 15 Jun 2011

Andrew Ang

BlackRock, Inc

Sergiy Gorovyy

Ellington Management Group

Greg van Inwegen

Citi Private Bank

Multiple version iconThere are 2 versions of this paper

Date Written: July 5, 2010

Abstract

We investigate the leverage of hedge funds using both time-series and cross-sectional analysis. Hedge fund leverage is counter-cyclical to the leverage of listed financial intermediaries and decreases prior to the start of the financial crisis in mid-2007. Hedge fund leverage is lowest in early 2009 when the leverage of investment banks is highest. Changes in hedge fund leverage tend to be more predictable by economy-wide factors than by fund-specific characteristics. In particular, decreases in funding costs and increases in market values forecast increases in hedge fund leverage. Decreases in fund return volatilities also increase leverage.

Keywords: capital structure, long-short positions, exposure, hedging, systemic risk

JEL Classification: G11, G18, G23, G32

Suggested Citation

Ang, Andrew and Gorovyy, Sergiy and van Inwegen, Greg, Hedge Fund Leverage (July 5, 2010). Available at SSRN: https://ssrn.com/abstract=1635284 or http://dx.doi.org/10.2139/ssrn.1635284

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Sergiy Gorovyy

Ellington Management Group ( email )

53 Forest Avenue
Ellington Management Group
Old Greenwich, CT CT 06870
United States

Greg Van Inwegen

Citi Private Bank ( email )

200 First Stamford Place
2nd Floor
Stamford, CT 06902
United States
203.961.6080 (Phone)

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