The European hedge funds industry: An empirical analysis of performance, liquidity, and growth

Soumaya Ben Khelifa

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The European hedge funds industry: An empirical analysis of performance, liquidity, and growth

Soumaya Ben Khelifa

https://doi.org/10.22495/cgsrv5i2p8

Abstract

While the performance of hedge funds has grabbed much attention from researchers, a few studies have been conducted on the drivers of hedge fund liquidity and performance (Shaub & Schmid, 2013). This study proposes new approaches to investigate the effect of share restrictions on European hedge fund performance and liquidity. We run different regressions of 1) returns, 2) flows, and 3) exposure to market liquidity risk on share restrictions, managerial incentives, and a set of control variables as independent variables. Using a sample of 1423 European hedge funds, our results suggest that restrictions imposed by European hedge funds add economic value to investors. Furthermore, we find that European hedge funds with strong share restrictions take on lower liquidity risk. There is a weak difference in liquidity risk exposure across directional European hedge funds with and without share restrictions. In addition, European hedge funds’ experience, large outflows during a crisis, and all share restrictions do not seem to be significantly related to funding flows in the crisis period, as well as in times of non-crisis. Finally, only the groups of young funds are associated with significant funds exposure to market liquidity risk.

Keywords: European Hedge Funds, Inflow Restrictions, Outflow Restrictions, Performance, Asset Illiquidity, Fund Flows, Incentives

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G11, G12, G15, G18, G19

Received: 04.08.2020
Accepted: 22.06.2021
Published online: 25.06.2021

How to cite this paper: Ben Khelifa, S. (2021). The European hedge funds industry: An empirical analysis of performance, liquidity, and growth. Corporate Governance and Sustainability Review, 5(2), 89-101. https://doi.org/10.22495/cgsrv5i2p8

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