Hedge Fund Leverage

60 Pages Posted: 28 Feb 2011 Last revised: 29 May 2023

See all articles by Andrew Ang

Andrew Ang

BlackRock, Inc

Sergiy Gorovyy

Ellington Management Group

Greg van Inwegen

Citi Private Bank

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Date Written: February 2011

Abstract

We investigate the leverage of hedge funds in the time series and cross section. Hedge fund leverage is counter-cyclical to the leverage of listed financial intermediaries and decreases prior to the start of the financial crisis in mid-2007. Hedge fund leverage is lowest in early 2009 when the market leverage of investment banks is highest. Changes in hedge fund leverage tend to be more predictable by economy-wide factors than by fund-specific characteristics. In particular, decreases in funding costs and increases in market values both forecast increases in hedge fund leverage. Decreases in fund return volatilities predict future increases in leverage.

Suggested Citation

Ang, Andrew and Gorovyy, Sergiy and van Inwegen, Greg, Hedge Fund Leverage (February 2011). NBER Working Paper No. w16801, Available at SSRN: https://ssrn.com/abstract=1768559

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Sergiy Gorovyy

Ellington Management Group ( email )

53 Forest Avenue
Ellington Management Group
Old Greenwich, CT CT 06870
United States

Greg Van Inwegen

Citi Private Bank ( email )

200 First Stamford Place
2nd Floor
Stamford, CT 06902
United States
203.961.6080 (Phone)

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