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

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Abstract

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. 

Keyword : Multimarket Funds, Market Efficiency, Market Anomalies

How to Cite
Malaquias, R., & Pontes, G. (2018). Liquidity Restrictions on Investment Funds: Are they a Response to Behavioral Bias?. Brazilian Business Review, 15(4), 382-390. https://doi.org/10.15728/bbr.2018.15.4.5
  Submitted
Jun 11, 2018
Published
Jul 2, 2018
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