Abstract
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.
Highlights
In the financial market, there is evidence of variables that can affect the performance of investment funds
It is in this context that this research is inserted, which was guided by the following question: what is the effect of the liquidity restrictions imposed by managers on the fund’s shareholders on the profitability of Brazilian multimarket funds? the objective of this study is to analyze the effect of liquidity restrictions on the profitability of Corresponding author: † Universidade Federal de Uberlândia, Uberlândia, MG, Brazil E-mail: rodrigofmalaquias@yahoo.com.br Ω Universidade Federal de Uberlândia, Uberlândia, MG, Brazil gleison.orientador@gmail.com
Investors can use this information to assist in the allocation of their investments; investment fund managers can observe empirical evidence regarding the consequences of decisions regarding the imposition of liquidity restrictions
Summary
There is evidence of variables that can affect the performance of investment funds. To develop the present research, we used a more comprehensive sample, with all categories of multimarket funds, and other measures to estimate the premium lock-up: a dummy variable and the natural logarithm of the lockup period With these differences, we were able to capture relationships different from those obtained in the study by Pontes et al (2015). The results of this study have relevance for investors and fund managers, by formalizing a quantitative analysis which tests the potential premium that managers give to shareholders as a result of lock-up periods Investors can use this information to assist in the allocation of their investments; investment fund managers can observe empirical evidence regarding the consequences of decisions regarding the imposition of liquidity restrictions
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