TY  - JOUR
AU  - Aragon,George O.
AU  - Strahan,Philip E.
TI  - Hedge Funds as Liquidity Providers: Evidence from the Lehman Bankruptcy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15336
PY  - 2009
Y2  - September 2009
UR  - http://www.nber.org/papers/w15336
L1  - http://www.nber.org/papers/w15336.pdf
N1  - Author contact info:
George O. Aragon
Arizona State University
Tempe, AZ
E-Mail: George.Aragon@asu.edu

Philip Strahan
Carroll School of Management
324B Fulton Hall
Boston College
Chestnut Hill, MA  02467
Tel: 617/552-6430
E-Mail: philip.strahan@bc.edu
AB  - Using the September 15, 2008 bankruptcy of Lehman Brothers as an exogenous shock to funding costs, we show that hedge funds act as liquidity providers.  Hedge funds using Lehman as prime broker could not trade after the bankruptcy, and these funds failed twice as often as otherwise-similar funds after September 15 (but not before).  Stocks traded by the Lehman-connected hedge funds in turn experienced greater declines in market liquidity following the bankruptcy than other stocks; and, the effect was larger for ex ante illiquid stocks.  We conclude that shocks to traders’ funding liquidity reduce the market liquidity of the assets that they trade.
ER  -