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Hedge Fund Stock Trading in the Financial Crisis of 2007--2009

Author

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  • Itzhak Ben-David
  • Francesco Franzoni
  • Rabih Moussawi

Abstract

Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008:Q3----Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place in volatile and liquid stocks. In comparison, redemptions and stock sales for mutual funds were not as severe. We show that hedge fund investors withdraw capital three times as intensely as mutual fund investors do in response to poor returns. We relate this stronger sensitivity to losses to share liquidity restrictions and institutional ownership in hedge funds. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Itzhak Ben-David & Francesco Franzoni & Rabih Moussawi, 2012. "Hedge Fund Stock Trading in the Financial Crisis of 2007--2009," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 1-54.
    • Handle: RePEc:oup:rfinst:v:25:y:2012:i:1:p:1-54
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr114
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