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

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  • Rodrigo Fernandes Malaquias

    (Universidade Federal de Uberlândia)

  • Gleison de Abreu Pontes

    (Universidade Federal de Uberlândia)

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.

Suggested Citation

  • Rodrigo Fernandes Malaquias & Gleison de Abreu Pontes, 2018. "Liquidity Restrictions on Investment Funds: Are they a Response to Behavioral Bias?," Brazilian Business Review, Fucape Business School, vol. 15(4), pages 382-390, July.
    • Handle: RePEc:bbz:fcpbbr:v:15:y:2018:i:4:p382-390
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