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Hedge Fund Leverage

  • Andrew Ang
  • Sergiy Gorovyy
  • Gregory B. van Inwegen

We investigate the leverage of hedge funds in the time series and cross section. Hedge fund leverage is counter-cyclical to the leverage of listed financial intermediaries and decreases prior to the start of the financial crisis in mid-2007. Hedge fund leverage is lowest in early 2009 when the market leverage of investment banks is highest. Changes in hedge fund leverage tend to be more predictable by economy-wide factors than by fund-specific characteristics. In particular, decreases in funding costs and increases in market values both forecast increases in hedge fund leverage. Decreases in fund return volatilities predict future increases in leverage.

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File URL: http://www.nber.org/papers/w16801.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16801.

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Date of creation: Feb 2011
Publication status: published as Ang, Andrew & Gorovyy, Sergiy & van Inwegen, Gregory B., 2011. "Hedge fund leverage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 102-126, October.
Handle: RePEc:nbr:nberwo:16801
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