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The life of the counterparty: Shock propagation in hedge fund-prime broker credit networks
Journal of Financial Economics ( IF 8.238 ) Pub Date : 2022-06-04 , DOI: 10.1016/j.jfineco.2022.02.002
Mathias S. Kruttli, Phillip J. Monin, Sumudu W. Watugala

Using novel credit data, we show that hedge fund borrowing is significantly overcollateralized, primarily with rehypothecable securities. An idiosyncratic liquidity shock to a major prime broker significantly decreases credit to connected hedge funds. The dominant channel behind this shock transmission is credit supply reduction rather than precautionary demand reduction. Funds posting more rehypothecable collateral are less affected because their collateral alleviates prime broker liquidity constraints. Exposed funds subsequently have lower aggregate credit with worse terms, suggesting imperfect substitutability across hedge fund credit sources. Funds subject to the decrease in balance sheet leverage subsequently increase portfolio illiquidity, embedded leverage, and derivatives exposure.



中文翻译:

交易对手的生命:对冲基金-主要经纪人信用网络中的冲击传播

使用新的信用数据,我们表明对冲基金借款明显超额抵押,主要是可再抵押证券。对主要主要经纪人的特殊流动性冲击会显着减少关联对冲基金的信贷。这种冲击传递背后的主要渠道是信贷供应减少,而不是预防性需求减少。发布更多可再抵押抵押品的基金受到的影响较小,因为它们的抵押品缓解了主要经纪人的流动性限制。暴露的基金随后具有较低的总信用和更差的条款,这表明对冲基金信用来源的可替代性不完善。受资产负债表杠杆下降影响的基金随后会增加投资组合的非流动性、嵌入式杠杆和衍生品敞口。

更新日期:2022-06-05
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