Share restrictions and asset pricing: Evidence from the hedge fund industry

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211 Scopus citations


This paper presents evidence on the relation between hedge fund returns and restrictions imposed by funds that limit the liquidity of fund investors. The excess returns of funds with lockup restrictions are approximately 4-7% per year higher than those of nonlockup funds. The average alpha of all funds is negative or insignificant after controlling for lockups and other share restrictions. Also, a negative relation is found between share restrictions and the liquidity of the fund's portfolio. This suggests that share restrictions allow funds to efficiently manage illiquid assets, and these benefits are captured by investors as a share illiquidity premium.

Original languageEnglish (US)
Pages (from-to)33-58
Number of pages26
JournalJournal of Financial Economics
Issue number1
StatePublished - Jan 1 2007


  • Hedge fund performance
  • Liquidity
  • Lockups
  • Transactions costs

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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