of the Sharpe Ratio (i.e., the standard deviation) to include liquidity risk, a major risk for investors in hedge funds … that is missing from the standard Sharpe Ratio formulation. We refer to our liquidity-risk-adjusted performance ratio as … the LRAPR. The results of our analysis of 1186 hedge funds alive in 2012-2020 show that funds with higher liquidity risk …

"liquidity cushion" (e.g. Scholes 2000; Duffie and Ziegler 2003; Brown, Carlin, and Lobo 2010). Consistently, hedge funds …' portfolio composition shows a delayed "flight to liquidity'': the proportion of hedge funds' liquid stock holdings decreased …

increases because investors' exogenous, idiosyncratic liquidity shocks are not diversified away. Using confidential regulatory … cash and liquid assets, which help absorb large, unexpected outflows. Such funds have to pay a liquidity premium and …

investors for limited liquidity. In the crisis period, this share illiquidity premium turns into an illiquidity discount. Hedge …