Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/196128
Authors: 
Sung, Sangwook
Cho, Hoon
Ryu, Doojin
Year of Publication: 
2019
Series/Report no.: 
Economics Discussion Papers No. 2019-31
Abstract: 
A hedge fund's capital structure is fragile because uninformed fund investors are highly loss sensitive and easily withdraw capital in response to bad news. Hedge fund managers, sharing common investors and interacting with each other through market price, sensitively react to other funds' investment decisions. In this environment, panic-based market runs can arise not because of systematic risk but because of the fear of runs. The authors find that when the market regime changes from a normal state to a "bad" state (in which runs are possible), hedge funds reduce investment prior to runs. In addition, the market runs are more likely to occur in a market where hedge funds hold greater market exposure and uninformed traders have greater sensitivity to past price movement.
Subjects: 
market sustainability
market runs
hedge funds
limits of arbitrage
financial crises
synchronization risk
JEL: 
G01
G23
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

Files in This Item:
File
Size
495.93 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.