contracontrarian

Hedge Fund Strategies: Global Macro vs. Market Neutral

"You might also think that market neutral funds would rely on funding liquidity to employ leverage. When funding liquidity dries up, one might expect that market neutral funds would therefore suffer."

Really market neutral funds don't require any outside funding from a macro perspective - they are funding the long side from the short side,there is no reason why liquidity shocks should affect their leverage or performance. The risks lie in higher margin requirements and uncorrelated movements among different equities,with the latter very unlikely during a market crash.

"ILLIQ” measure (average daily price move over average daily volume)"

The ILLIQ used in this study isn't a useful measure of market liquidity,because volume depends on many other factors. Realistic market liquidity can't be calculated,it can be only guessed based on how the market reacts to larger buy/sell orders.