Evening Seminar - 2nd March 2010

 Hedge Fund Return Sensitivity to Global Liquidity

Bernd Scherer (joint work with Stephan Kessler)

We identify a common latent liquidity factor, which is the driver of observable and commonly used liquidity proxies across asset classes. We use two methodologies to identify the latent liquidity factor: State space modelling (SSM) and Principal Component Analysis (PCA). We find that the returns of hedge funds respond to an increase in illiquidity with statistically significant negative returns. The relative size of the liquidity factor loadings of different hedge fund indices are generally consistent with the liquidity sensitivities of the underlying strategies. The results hold up in a range of robustness tests. Finally, we find a surprisingly strong link between global risk factors and hedge fund returns, questioning the industry’s claim to deliver pure manager alpha.

 

Details

Date: 2nd March 2010
Time: 6.30pm – doors will open at 6.00pm

Venue: Generously hosted by BlackRock at 33 King William St., London 

Fees: Members - £20; Non-Members - £40

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