Who Benefits in a Crisis? Evidence from Hedge Fund Stock and Option Holdings

47 Pages Posted: 7 Dec 2016 Last revised: 1 Jan 2018

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Zhen Shi

Georgia State University

Date Written: October 18, 2017

Abstract

We use a unique data set of hedge fund long equity and equity option positions to investigate a significant lockup-related premium earned during the Tech Bubble and Financial Crisis. Net fund flows are significantly greater among lockup funds during crisis and non-crisis periods. Managers of hedge funds with locked up capital trade opportunistically against flow-motivated trades of non-lockup managers, consistent with a hypothesis of rent extraction in providing crisis era liquidity. The success of this opportunistic trading is concentrated during periods of high borrowing costs, in less liquid stock markets, and is enhanced by hedging in the equity option market.

Keywords: Hedge Funds; Opportunistic Trading; Lockups; Options; Derivatives; Financial Crises

JEL Classification: G11, G12

Suggested Citation

Aragon, George O. and Martin, J. Spencer and Shi, Zhen, Who Benefits in a Crisis? Evidence from Hedge Fund Stock and Option Holdings (October 18, 2017). Available at SSRN: https://ssrn.com/abstract=2880794 or http://dx.doi.org/10.2139/ssrn.2880794

George O. Aragon

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zhen Shi (Contact Author)

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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