Hedge fund market runs during financial crises

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Hedge funds exit financial markets simultaneously after enormous shocks, such as the global financial crisis. While previous studies highlight only fund investors' synchronized withdrawals as the major driver of massive asset liquidations, we primarily focus on informed and rational fund managers and suggest a theoretical model that illustrates fund managers' synchronized market runs. This study shows that the possibility of runs induces panic-based market runs not because of systematic risk itself but because of the fear of runs. We find that when the market regime changes from a normal to a 'bad' state in which runs are possible, hedge funds reduce their investments prior to runs. In addition, market runs are more likely to occur in markets in which hedge funds have greater market exposure and uninformed traders are more sensitive to past price movements.
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2021-01
Language
English
Article Type
Article
Citation

ECONOMIC RESEARCH-EKONOMSKA ISTRAZIVANJA, v.34, no.1, pp.266 - 291

ISSN
1331-677X
DOI
10.1080/1331677X.2020.1782245
URI
http://hdl.handle.net/10203/283677
Appears in Collection
MT-Journal Papers(저널논문)
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