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Abstract
This paper analyzes the structure and pricing of liquidity risk for international listed buyout funds. We use a time-series framework for our tests which allows us to discriminate between the exposure of buyout funds to two types of liquidity: Market and funding liquidity. We find that the innovation in funding liquidity is a priced factor for buyout funds, while changes in market liquidity are not. Investors require a risk premium of approximately 3% to 7% per annum in order to be compensated for bearing that risk. Controlling for funding liquidity risk decreases the alpha of the asset class to zero.
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