TY - JOUR
T1 - Did connected hedge funds benefit from bank bailouts during the financial crisis?
AU - Faff, Robert W.
AU - Parwada, Jerry T.
AU - Tan, Eric K.M.
N1 - Funding Information:
We thank participants at the 2014 International Risk Management Conference, the 2014 Asian Finance Association Annual Conference, the 2010 European Finance Association Annual Meeting, and the 2010 Deutsche Bundesbank Systemic Risk Conference in Dresden; the University of Mannheim and the University of South Australia; and Casper de Vries, Greg Gregoriou, Nicolas Papageorgiou, Matthew Pollard, Kasper Roszbach, Stefan Ruenzi, Kyung Shim, and Alfred Yawson for their useful comments.
Publisher Copyright:
© 2019 Elsevier B.V.
Copyright:
Copyright 2019 Elsevier B.V., All rights reserved.
PY - 2019/10
Y1 - 2019/10
N2 - We examine whether connected hedge funds (i.e. those that are prime-brokerage clients of bailout banks) benefited from bailout programs initiated in seven countries during the 2007–2009 financial crisis. We find that being connected to a bailout bank is generally beneficial for hedge funds in that it lowers the rate of fund failure. However, this benefit becomes smaller during the post bailout period, for example, due to the greater risk-taking and higher leverage of such funds subsequent to bailouts. As such, our findings provide support for the moral hazard hypothesis.
AB - We examine whether connected hedge funds (i.e. those that are prime-brokerage clients of bailout banks) benefited from bailout programs initiated in seven countries during the 2007–2009 financial crisis. We find that being connected to a bailout bank is generally beneficial for hedge funds in that it lowers the rate of fund failure. However, this benefit becomes smaller during the post bailout period, for example, due to the greater risk-taking and higher leverage of such funds subsequent to bailouts. As such, our findings provide support for the moral hazard hypothesis.
UR - http://www.scopus.com/inward/record.url?scp=85070391925&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2019.08.003
DO - 10.1016/j.jbankfin.2019.08.003
M3 - Article
AN - SCOPUS:85070391925
SN - 0378-4266
VL - 107
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
M1 - 105605
ER -