Liquidity Restrictions on Investment Funds: Are they a Response to Behavioral Bias?

Liquidity constraints imposed to shareholders of investment funds, also known as lock-up periods, represent an alternative that managers can use to implement and maintain long-term strategies. The academic literature suggests that, as a result of liquidity constraints, funds should deliver a premium...

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Bibliographic Details
Main Authors: Rodrigo Fernandes Malaquias, Gleison de Abreu Pontes
Format: Article
Language:English
Published: FUCAPE Business School 2018-01-01
Series:BBR: Brazilian Business Review
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Online Access:http://www.redalyc.org/articulo.oa?id=123056181005
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Summary:Liquidity constraints imposed to shareholders of investment funds, also known as lock-up periods, represent an alternative that managers can use to implement and maintain long-term strategies. The academic literature suggests that, as a result of liquidity constraints, funds should deliver a premium to their shareholders, and previous studies have documented this effect. Based on this context, in this paper we analyze the effect of lock-up periods on the profitability of Brazilian multimarket funds. We used a sample composed by 4,662 multimarket funds in the period from January 2009 to February 2016. The results showed a positive effect of lock-up periods on the average profitability of the funds, as well as on their risk-adjusted return. Our discussion highlights arguments that some measures taken by fund managers to protect their strategies against impulsive behaviors of funds’ investors can present a positive effect on the performance of their funds.
ISSN:1807-734X