Liquidity goes down the drain

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Although the liquidity problems that afflicted hedge funds in 2008 have receded, the industry needs to find better ways to understand and manage liquidity risk in order to avoid a repeat of last year’s fiasco.

The core problem for hedge funds is the absence of an industry-standard method for defining and measuring liquidity risk.

“There are various theories on how to incorporate liquidity risk within a standard risk model like value at risk, but none of these have been widely accepted,” says Lynd

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