In for the Long Haul: Activist Hedge Funds and Fragility Risk

54 Pages Posted: 4 Jun 2016 Last revised: 5 Jun 2017

See all articles by Julia Reynolds

Julia Reynolds

University of Lugano - Institute of Finance

Date Written: May 19, 2017


This paper explores the idea that investors ex ante price the risk that large fire sales by liquidity-shocked blockholders will trigger negative price impacts, referred to as "fragility risk", and argues that fragility risk should be lower for institutional blockholders who can credibly signal superior long-term liquidity management. This mitigation of risk can subsequently generate substantial abnormal returns. Especially considered are block acquisitions by activist hedge funds, who are unique in terms of long lock-up and redemption notification periods. A hand-collected dataset reveals comparatively higher cumulative abnormal returns following activist hedge fund block acquisitions. A difference-in-differences analysis shows that block ownership by activist hedge funds insulates stocks against a drop in returns following a positive shock to fragility risk.

Keywords: Institutional Investors, Blockholders, Hedge Funds, Hedge Fund Activism, Liquidity

JEL Classification: G11, G12, G14, G23, G32

Suggested Citation

Reynolds, Julia, In for the Long Haul: Activist Hedge Funds and Fragility Risk (May 19, 2017). Available at SSRN: or

Julia Reynolds (Contact Author)

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano

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