The associate professor of finance explores the link between funding liquidity risk and the ability of managers to engage in risky arbitrage.
Adam Aiken, associate professor of finance in the Martha and Spencer Love School of Business, has co-authored the article, “Funding Liquidity Risk and the Dynamics of Hedge Fund Lockups,” which is published in the Journal of Financial and Quantitative Analysis.
In the article, Aiken and co-authors Christopher Clifford, University of Kentucky; Jesse Ellis, North Carolina State University; and Qiping Huang, Boise State University; exploit the expiring nature of hedge fund lockups to create a new measure of funding liquidity risk that varies within funds.
The co-authors find that hedge funds with lower funding risk generate higher returns, and this effect is driven by their increased exposure to equity-mispricing anomalies.
“Our results are robust to a variety of sampling criteria, variable definitions, and control variables,” the authors wrote in the article’s abstract. “Further, we address endogeneity concerns in various ways, including a placebo approach and regression discontinuity design. Collectively, our results support a causal link between funding risk and the ability of managers to engage in risky arbitrage.”
The Journal of Financial and Quantitative Analysis (JFQA) publishes theoretical and empirical research in financial economics. An intensive blind review process and exacting editorial standards contribute to the JFQA’s reputation as a top finance journal.
Aiken joined Elon in 2015 after receiving a doctorate in finance from Arizona State University. His research interests include financial institutions and performance measurement, with a particular focus on hedge funds.