Liquidity Risk and Limited Arbitrage: Are Banks Helping Hedge Funds Get Rich?
During systematic liquidity shocks, opaque hedge funds are able to borrow from banks via credit lines and thus are not limited by capital constraints. This arrangement is optimal for both parties: hedge funds that cannot raise new capital during a shock due to agency problems are able to invest in an improved opportunity set; banks with unique lending capacity during the shock when their government-protected deposits receive inflows, improve their profits by lending to hedge funds. Bank deposit inflows not only provide low cost funding during a liquidity shock, but also help estimate the magnitude of the shock, reducing the information asymmetry that otherwise constrains hedge funds. Because banks are endowed with the unique combination of low funding cost and sophisticated information, they have advantage in lending to hedge funds during a systematic liquidity shock. While banks do not participate in the upside risk created by their financing, they compete away their effective government subsidy to the benefit of their hedge fund clients.
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）