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Financial Conglomerate Affiliated Hedge Funds: Risk Taking Behavior and Liquidity Provision

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  • Giannetti, Mariassunta
  • Franzoni, Francesco

Abstract

This paper explores how affiliation to financial conglomerates relates to hedge funds’ funding and risk taking. We find that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding than other hedge funds. This may explain our finding that FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds during financial turmoil. In good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk. Thus, FCAHFs perform a stabilizing function for the financial system, even though they do not generate higher returns for their investors.

Suggested Citation

  • Giannetti, Mariassunta & Franzoni, Francesco, 2017. "Financial Conglomerate Affiliated Hedge Funds: Risk Taking Behavior and Liquidity Provision," CEPR Discussion Papers 12040, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12040
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    Citations

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    Cited by:

    1. Timmer, Yannick, 2018. "Cyclical investment behavior across financial institutions," Journal of Financial Economics, Elsevier, vol. 129(2), pages 268-286.
    2. Jiakai Chen & Haoyang Liu & Asani Sarkar & Zhaogang Song, 2020. "Dealers and the Dealer of Last Resort: Evidence from the Agency MBS Markets in the COVID-19 Crisis," Staff Reports 933, Federal Reserve Bank of New York.
    3. Milan Szabo, 2023. "Cyclical Investment Behavior of Investment Funds: Its Heterogeneity and Drivers," Working Papers 2023/5, Czech National Bank.
    4. Nina Boyarchenko & Thomas M. Eisenbach & Pooja Gupta & Or Shachar & Peter Van Tassel, 2018. "Bank-Intermediated Arbitrage," Liberty Street Economics 20181018, Federal Reserve Bank of New York.

    More about this item

    Keywords

    Hedge funds; Financial conglomerates; Volker rule; Liquidity provision;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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