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Financial Conglomerate Affiliation and Hedge Funds’ Countercyclical Risk Taking

Author

Listed:
  • Francesco A. Franzoni

    (University of Lugano; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute)

  • Mariassunta Giannetti

    (Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance)

Abstract

We show that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding and lower flow-performance sensitivity than other funds even though they are less likely to impose impediments on withdrawals. Arguably due to their privileged access to funding, during periods of financial turmoil, FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds. During good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk factors. Thus, FCAHFs appear to perform a stabilizing function for the financial system.

Suggested Citation

  • Francesco A. Franzoni & Mariassunta Giannetti, 2015. "Financial Conglomerate Affiliation and Hedge Funds’ Countercyclical Risk Taking," Swiss Finance Institute Research Paper Series 15-68, Swiss Finance Institute, revised May 2016.
  • Handle: RePEc:chf:rpseri:rp1568
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    More about this item

    Keywords

    Hedge Funds; Financial Conglomerates; Volker Rule; Liquidity Provision;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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