DP6877 The Secondary Market for Hedge Funds and the Closed-Hedge Fund Premium

Author(s): Tarun Ramadorai
Publication Date: June 2008
Keyword(s): alpha, closed-end funds, hedge funds, liquidity, secondary market
JEL(s): G11, G12, G23
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6877

Employing data from a new secondary market for hedge funds, this paper documents the existence of a closed-hedge fund premium, analogous to the closed-end mutual fund premium which has been extensively studied in the literature. Over the past decade, the two premia comove with one another at high and low frequencies, which is surprising given the numerous differences between the two markets. Rational theories put forward to explain the closed-end mutual fund premium are strongly supported as explanations for the variation in closed-hedge fund premia. These results are robust to correction for potential selection bias.