Liquidity Restrictions on Investment Funds: Are they a Response to Behavioral Bias?

Liquidity constraints imposed to shareholders of investment funds, also known as lock-up periods, represent an alternative that managers can use to implement and maintain long-term strategies. The academic literature suggests that, as a result of liquidity constraints, funds should deliver a premium...

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Bibliographic Details
Published inBrazilian business review Vol. 15; no. 4; pp. 382 - 390
Main Authors Malaquias, Rodrigo Fernandes, Pontes, Gleison de Abreu
Format Journal Article
LanguageEnglish
Published Vitória FUCAPE Business School 01.07.2018
EditionEnglish ed.
Subjects
Behavior
Behavioral economics
Bias
Investment advisors
Liquidity
Mutual funds
Profitability
Rationality
Restrictions
Self control
Stockholders
Brazil
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Summary:Liquidity constraints imposed to shareholders of investment funds, also known as lock-up periods, represent an alternative that managers can use to implement and maintain long-term strategies. The academic literature suggests that, as a result of liquidity constraints, funds should deliver a premium to their shareholders, and previous studies have documented this effect. Based on this context, in this paper we analyze the effect of lock-up periods on the profitability of Brazilian multimarket funds. We used a sample composed by 4,662 multimarket funds in the period from January 2009 to February 2016. The results showed a positive effect of lock-up periods on the average profitability of the funds, as well as on their risk-adjusted return. Our discussion highlights arguments that some measures taken by fund managers to protect their strategies against impulsive behaviors of funds' investors can present a positive effect on the performance of their funds.
ISSN:1808-2386
DOI:10.15728/bbr.2018.15A5