Hedge funds and discretionary liquidity restrictions

Adam L. Aiken, Christopher P. Clifford, Jesse A. Ellis

Research output: Contribution to journalArticlepeer-review

29 Scopus citations


We study hedge funds that imposed discretionary liquidity restrictions (DLRs) on investor shares during the financial crisis. DLRs prolong fund life, but impose liquidity costs on investors, creating a potential conflict of interest. Ostensibly, funds establish DLRs to limit performance-driven withdrawals that could force fire sales of illiquid assets. However, after they restrict investor liquidity, DLR funds do not reduce illiquid stock sales and underperform a control sample of non-DLR funds. Consequently, DLRs appear to negatively impact fund family reputation. After the crisis, funds from DLR families faced difficulties raising capital and were more likely to cut their fees.

Original languageEnglish
Pages (from-to)197-218
Number of pages22
JournalJournal of Financial Economics
Issue number1
StatePublished - Apr 1 2015

Bibliographical note

Publisher Copyright:
© 2015 Elsevier B.V.


  • Discretionary liquidity
  • Hedge funds
  • Liquidity

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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