The Market Liquidity Timing Skills of Debt‐Oriented Hedge Funds

23 Pages Posted: 10 Jan 2017

See all articles by Baibing Li

Baibing Li

Loughborough University

JI LUO

Loughborough University

Kai-Hong Tee

Loughborough University - School of Business and Economics

Date Written: January 2017

Abstract

We investigate the liquidity timing skills of debt‐oriented hedge funds following the 2008 credit crisis, which demonstrated the importance of understanding liquidity conditions to manage the market exposure of investments. We base the analysis on the estimated co‐movements of fixed income and equity market liquidity. Our findings, which are statistically robust, show evidence of liquidity timing ability in the fixed income market for all debt‐oriented hedge fund strategy categories. Joint market liquidity timing skill, however, is only found in some categories. Our findings suggest that debt‐oriented hedge fund managers use a sophisticated set of timing strategies in their investment managements.

Keywords: fixed income market, hedge funds, liquidity timing skill, market exposure

Suggested Citation

Li, Baibing and LUO, JI and Tee, Kai-Hong, The Market Liquidity Timing Skills of Debt‐Oriented Hedge Funds (January 2017). European Financial Management, Vol. 23, Issue 1, pp. 32-54, 2017, Available at SSRN: https://ssrn.com/abstract=2896445 or http://dx.doi.org/10.1111/eufm.12090

Baibing Li (Contact Author)

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

JI LUO

Loughborough University

Kai-Hong Tee

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

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