Ben-David, Itzhak; Franzoni, Francesco; Moussawi, Rabih - National Centre of Competence in Research - Financial … - 2010
To shed light on the empirical relevance of the limits to arbitrage, we study hedge funds’ trading patterns in the stock market during liquidity crises. Consistent with arbitrageurs’ limited ability to provide liquidity, we find that at the time of liquidity crises hedge funds reduce their...