The Volcker Rule and the hedge fund liquidity circle

Research output: Working paper

81 Downloads (Pure)

Abstract

The implementation of the Volcker Rule (section 619 of the 2010 Dodd-Frank Act)
profoundly impacts the funding liquidity of hedge funds, their liquidity risk exposure and liquidity provision to the market. Analysing a sample of 5,697 hedge funds, we find that following the legislation, capital flows to hedge funds decline, and their flow-performance sensitivity increases. Hedge funds reduce their market liquidity exposure and realign their market-making activities towards the most liquid stocks. These results support the Brunnermeier-Pedersen model of illiquidity spirals.
Original languageEnglish
DOIs
Publication statusPublished - 2022

Fingerprint

Dive into the research topics of 'The Volcker Rule and the hedge fund liquidity circle'. Together they form a unique fingerprint.

Cite this