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From Matthias Knab, Opalesque Europe: We continue to highlight some of the main findings of Man Investment's Research and Analysis Group's Q2 Quarterly Review. The report can be downloaded at the Source link below, and yesterday's article "Man Investments: Hedge funds back on track as risk appetite comes back strongly, funds retain assets even after removing gates" can be accessed here: Source.
The elusive liquidity premium
An extensive and still growing body of research suggests that illiquidity constitutes an
additional factor in determining expected returns. The common reasoning is that trading
in illiquid markets involves additional risks and, as compensation for these risks,
investors demand a liquidity discount on prices or, equivalently, a liquidity premium on
expected returns. Consequently, in illiquid markets, expected returns do not only reflect
the traditional risk premium (commonly referred to as beta) but also a liquidity premium
(commonly referred to as alternative beta or sometimes alpha). Market liquidity is an
elusive concept, however. Generally, it refers to the ease with which assets can be
traded among investors. In detail, it covers several dimensions, such as depth,
tightness and immediacy, and how these dimensions interact with each other and can
be themselves a source of risk. The obvious question that comes to mind is: Why have
so many...................... To view our full article Click here
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