Does Size Matter in Predicting Hedge Funds’ Liquidation?
European Financial Management (Forthcoming)
50 Pages Posted: 4 Nov 2016 Last revised: 16 Oct 2017
Date Written: October 16, 2017
In this study, we propose a set of covariates that exploit information content of hedge funds’ relative size, performance, growth, tail risk, and past liquidation rate, in predicting their liquidation. Empirical results show that our proposed covariates exhibit significant predictive power for up to two years even when we control for fund specific characteristics. Furthermore, we estimate separate liquidation prediction models for small, medium, and large funds. Our findings suggest that liquidation likelihood of hedge funds is inversely related to fund size, and statistical significance of factors affecting their liquidation vary across different size categories.
Keywords: hedge fund; liquidation; size; failure; default
JEL Classification: G11; G17; G33
Suggested Citation: Suggested Citation