Who Benefits in a Crisis? Evidence from Hedge Fund Stock and Option Holdings

We use a unique data set of hedge fund long equity and equity option positions to investigate a significant lockup-related premium that is earned during the Tech Bubble and Financial Crisis. Net fund flows are significantly greater among lockup funds during both crisis and non-crisis periods. Managers of hedge funds with locked up capital trade opportunistically against flow-motivated trades of nonlockup managers, consistent with a hypothesis of rent extraction in provision of crisis era liquidity. Moreover, the success of this opportunistic trading is concentrated in less liquid stock markets and enhanced by hedging in the equity option market.