Sifting through the Wreckage: Lessons from Recent Hedge-Fund Liquidations

Journal of Investment Management, 4th Quarter, 2004

44 Pages Posted: 22 Nov 2004  

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Mila Getmansky

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Shauna X. Mei

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

We document the empirical properties of a sample of 1,765 funds in the TASS Hedge Fund database from 1994 to 2004 that are no longer active. The TASS sample shows that attrition rates differ significantly across investment styles, from a low of 5.2% per year on average for convertible arbitrage funds to a high of 14.4% per year on average for managed futures funds. We relate a number of factors to these attrition rates, including past performance, volatility, and investment style, and also document differences in illiquidity risk between active and liquidated funds. We conclude with a proposal for the U.S. Securities and Exchange Commission to play a new role in promoting greater transparency and stability in the hedge-fund industry.

Keywords: Hedge funds, risk management, liquidity

JEL Classification: G12, G20, G33

Suggested Citation

Lo, Andrew W. and Getmansky, Mila and Mei, Shauna X., Sifting through the Wreckage: Lessons from Recent Hedge-Fund Liquidations. Journal of Investment Management, 4th Quarter, 2004. Available at SSRN: https://ssrn.com/abstract=622521

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Shauna X. Mei

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States

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