Hedge fund stratagems and long-run SEO firm performance

2019 ◽  
Vol 45 (7) ◽  
pp. 886-903
Author(s):  
Robert M. Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Stock Returns ◽  
Hedge Funds ◽  
Stock Price ◽  
Hedge Fund ◽  
Content Type ◽  
Fund Managers ◽  
Long Run ◽  
Short Run ◽  
Price Movements ◽  
Variable Bias

Purpose The purpose of this paper is to explore if hedge fund variables (HFVs) are associated with long-run compounded raw returns (CRRs) for seasoned equity offering (SEO) firms for a six-year window around the offering month for firms undergoing SEOs. Design/methodology/approach The event study methodology is used to calculate long-run CRRs that are used in a regression model as dependent variables. Independent variables include HFVs and nonhedge fund variables (NFVs) with standard errors clustered at the month level. Findings Three new long-run findings, consistent with recent short-run findings, are offered. First, HFVs are significantly associated with long-run CRRs for SEO firms. Second, HFVs perform competitively compared to NFVs. Third, a potential omitted-variable bias results if HFVs are not used. Research limitations/implications This research assumes that hedge fund managers can identify good (poor) performing SEO firm that allow for profitable long (short) positions. The proportion of hedge funds using a strategy will change in the hypothesized manner needed to make profit. Practical implications Hedge fund managers can use long-run strategies to capitalize on price movements around significant corporate events. Social implications Larger institutional traders have investment advantages due to superior knowledge and greater ability to manipulate prices. Originality/value This research is the first study to detail the significant association between hedge fund stratagems and long-run stock returns for firms undergoing key corporate events. This study demonstrates the need to consider hedge fund strategies when trying to understand stock price movements.

Hedge fund variables and short-run SEO returns

2018 ◽  
Vol 14 (3) ◽  
pp. 322-341 ◽  
Author(s):  
Robert Martin Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Stock Returns ◽  
Hedge Funds ◽  
Statistical Significance ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
Seasoned Equity Offerings ◽  
Trading Strategies ◽  
Content Type ◽  
New Findings ◽  
Short Run

Purpose The purpose of this paper is to determine if hedge fund variables (HFVs) are associated with short-run daily buy and hold abnormal returns (BHARs) for a 30-day window around announcement dates for seasoned equity offerings (SEOs). Design/methodology/approach This paper utilizes the event study metric that computes BHARs. These BHARs are used in a regression model as dependent variables with HFVs and nonhedge fund variables (NFVs) as independent variables. For regression tests, standard errors are clustered at the month level. Findings This paper offers three new findings. First, HFVs are significantly associated with SEO BHARs. Second, HFVs are capable being associated with stronger statistical significance compared to NFVs. Third, not using HFVs can produce an omitted-variable bias. Research limitations/implications This paper does not have information on which individual hedge funds use a strategy during the month of the offering but only the proportion of hedge funds that do. A research implication is the proportion can be associated with SEO BHARs in a fashion predicted based on a long or short position. Practical implications Hedge funds can use trading strategies to capitalize on established patterns of price behavior. Social implications Hedge funds enjoy a trading advantage over smaller investors. Originality/value This paper is the first study to document the association between hedge fund stratagems and stock returns around a major corporate event. It shows researchers should consider institutional trading strategies when studying the market response to a major corporate event.

Portraits of five hedge fund fraud cases

2008 ◽  
Vol 15 (2) ◽  
pp. 179-213 ◽  
Author(s):  
Majed R. Muhtaseb ◽  
Chun Chun “Sylvia” Yang
Keyword(s):  
Asset Management ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Fund ◽  
Good Opportunity ◽  
Content Type ◽  
Fund Managers ◽  
Management Group ◽  
Fund Industry ◽  
Asset Managers

PurposeThe purpose of this paper is two fold: educate investors about hedge fund managers' activities prior to the fraud recognition by the authorities and to help investors and other stakeholders in the hedge fund industry identify red flags before fraud is actually committed.Design/methodology/approachThe paper investigates fraud committed by the Bayou Funds, Beacon Hill Asset Management, Lancer Management Group (LMG), Lipper & Company and Maricopa investment fund. The fraud activities took place during 2000 and 2005.FindingsThe five cases alone cost the hedge fund investors more than $1.5 billion. Investors may have had a good opportunity for avoiding the irrecoverable costs of the fraud had they carefully vetted the backgrounds of the hedge fund managers and/or continuously monitored the funds activities, especially during turbulent market environments.Originality/valueThis is the first research paper to identify and extensively investigate fraud committed by hedge funds. In spite of the size of the hedge fund industry and relatively substantial level and inevitably recurring fraud, academic journals are to yet address this issue. The paper is of great value to hedge funds and their individual and institutional investors, asset managers, financial advisers and regulators.

Are hedge fund returns affected by media coverage of macroeconomic news?

2019 ◽  
Vol 36 (3) ◽  
pp. 427-439
Author(s):  
Sandip Dutta ◽  
James Thorson
Keyword(s):  
Hedge Funds ◽  
Media Coverage ◽  
Hedge Fund ◽  
Real Sector ◽  
Macroeconomic News ◽  
Content Type ◽  
Fund Managers ◽  
News Announcements ◽  
Hedge Fund Returns ◽  
The Impact

Purpose Extant literature suggests that the difficulty associated with the interpretation of macroeconomic news announcements by the market in general in different economic environments, might be the reason why most studies do not find any significant relationship between real-sector macroeconomic variables and financial asset returns. This paper aims to use a different approach to measure macroeconomic news. The objective is to examine if a different measure of a macroeconomic news variable, constructed from media coverage of the same, significantly affects hedge fund returns. Design/methodology/approach The authors use a news index for unemployment, which is a real-sector variable, constructed from newspaper coverage of unemployment announcements and examine its impact on hedge fund returns. Findings Contrary to the other studies that examine the impact of macroeconomic news on hedge fund returns, the authors find that media coverage of unemployment news announcements significantly affects hedge fund returns. Practical implications Overall, this paper demonstrates that the manner in which the market interprets macroeconomic news announcements in different economic environments is probably a more relevant factor for hedge funds and is more likely to impact hedge fund returns. In conjunction with variables – constructed from media coverage of unemployment news announcements – that factor in the manner of interpretation, it is found that surprises also matter for hedge fund returns. This is an important consideration for hedge fund managers as well. Originality/value To the best of the authors’ knowledge, this is the first study that examines the impact of media coverage of macroeconomic news announcements on hedge fund returns and finds significantly different results with real-sector macro variables.

Financial instability, integration and volatility of emerging South Asian stock markets

2017 ◽  
Vol 6 (2) ◽  
pp. 177-190 ◽  
Author(s):  
Rakesh Kumar ◽  
Raj S. Dhankar
Keyword(s):  
Stock Returns ◽  
South Asian ◽  
Stock Markets ◽  
Equity Markets ◽  
International Market ◽  
Portfolio Diversification ◽  
Financial Instability ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to examine the short- and long-run spillover effect of international financial instability on emerging South Asian stock markets. The paper also investigates the financial integration regionally. Design/methodology/approach Granger causality test is used for short-run causal relations. Since results of preliminary test highlight the significant autocorrelations in stock returns, GARCH class models with extreme shocks in international financial market are utilized to test the long-run spillover impact on stock returns. Findings Results indicate significant short- and long-run spillover impacts of international financial instability on the stock returns. They highlight the significant co-integration of South Asian stock markets with the international market. Significant correlations in stock returns and volatility reveal the degree of regional integration to be high between India, Pakistan and Sri Lanka. Research limitations/implications Business, political and market conditions of South Asian stock markets are fundamentally different from each other. These economies were liberalized at different time, which in turn may affect the degree of integration with international equity markets and regionally alike. Practical implications Financial liberalization has linked the South Asian stock markets to the rest of the world. Stock prices move in the same line with the emergence of global expected and unexpected economic shocks. The benefits that arise from the diversification of funds will be eradicated in the long run. Investors with long investment horizons will not actually benefit from portfolio diversification in South Asian equity markets. The Bangladesh stock market does not respond to volatility in international market in the short run and may be a good destination for short-term investment. Originality/value Pioneer efforts are made by utilizing a novel approach with the use of net volatility change in world financial instability for measuring the short- and long-run impacts. Given the emergence of South Asian stock markets, new insights into their vulnerability to world financial shocks provide interesting findings for portfolio diversification.

International diversification among Islamic investments: is there any benefit

2014 ◽  
Vol 40 (6) ◽  
pp. 613-633 ◽  
Author(s):  
Mejda Bahlous ◽  
Rosylin Mohd. Yusof
Keyword(s):  
Structural Dynamics ◽  
North American ◽  
International Diversification ◽  
Asia Pacific ◽  
Impulse Response Functions ◽  
Mena Region ◽  
Content Type ◽  
Fund Managers ◽  
Long Run ◽  
Short Run

Purpose – The purpose of this paper is to assess the benefits to investors of international diversification among only Islamic funds. Compared to conventional investors who are not restricted in their choice of funds, Islamic investors are restricted to investing in shari’a-compliant funds, thus giving up some diversification benefits. The possibility of international diversification among only Islamic funds may thus help Islamic investors to invest in accordance to their religious beliefs and still benefit from diversification. Design/methodology/approach – The paper assesses the benefits of diversification by analyzing the extent of co-integration among four regional Islamic funds and by estimating the short-term and long-term structural dynamics of and among these funds. The paper uses an Autoregressive-Distributed Lag (ARDL) approach to testing the long-run relationships among these funds and use variance decomposition and impulse response functions to examine the structural dynamics of the relationship between these funds. These methods can also be used for predictive purposes and represent, in authors opinion, a useful approach that complements the traditional methodology of static covariance matrix to find the efficient frontier at a given moment in time. Findings – The results indicate that international diversification can help reduce risk if Asia Pacific Islamic funds and MENA region Islamic funds are invested contemporaneously and/or Asia Pacific Islamic funds and North America Islamic funds, and/or Europe funds and MENA funds. The paper also finds that investors would benefit from investing in North American funds and MENA funds both in the long run and in the short run. Conversely, the paper finds that Europe funds and North American funds are co-integrated in the long-run precluding the opportunity for substantial diversification benefits from these particular portfolio mixes. Research limitations/implications – The long-run analysis helps passive fund managers and investors in composing their portfolio by providing evidence that some portfolio mixes of different regional Islamic funds lead to better risk return performance than one regional Islamic fund portfolios. The short-run analysis however helps the active fund managers and investors as it suggests that diversifying in the short run and reviewing their portfolio on a regular basis would be beneficial as well. Originality/value – This analysis justifies the promotion of Islamic finance as the negative correlation between several Islamic funds across the regions studied suggests better opportunities of investments via international diversification making Islamic funds more desirable.

Fraud against hedge funds: implications to operational risk and due diligence

2020 ◽  
Vol 27 (1) ◽  
pp. 67-77
Author(s):  
Majed R. Muhtaseb
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Operational Risk ◽  
Future Research ◽  
Due Diligence ◽  
Law Firm ◽  
Short Term ◽  
Content Type ◽  
Fund Managers

Purpose The loss of an amount in excess of $100m cash deposit can be disruptive to the operations, definitely the liquidity of the hedge fund. Should a hedge fund liquidity position deteriorate, its compromised solvency could impact its vendors, most notably creditors and prime brokers. Large successful hedge funds do make basic mistakes. Lawyer Marc Dreier committed the criminal act of selling fraudulent promissory notes to hedge funds and others. Mr Drier’s success in selling fraudulent promissory notes was facilitated by his accomplices who posed as fake representatives of legitimate institutions. Drier and team presented bogus “audited financial statements” and forged developer’s signatures, and even went as far as using the unsuspecting institutions’ premises for meetings to meet potential notes buyers to further falsely legitimize the scheme. He had the notes buyers send their payments to his law firm account, to secure the money. His actions cost his victims, who include 13 hedge fund managers, other investors and entities, $400m in addition to his law firm’s employees who also suffered when his law firm was dissolved. For his actions, he was sentenced 20 years in federal prison for investment fraud. This study aims to direct hedge fund investors and other stakeholders to thoroughly vet the compliance function, especially controls on cash disbursements, even if the hedge fund is sizable (in excess of $1bn). Investors and even other stakeholders also should place a greater focus on what is usually overlooked issue; most notably the credit quality and authenticity of short-term investments bought by their hedge funds. Design/methodology/approach A thorough investigation of a fraud committed by a lawyer against a number of hedge funds. Several important lessons are identified to professionals who conduct due diligence on hedge funds. Findings The details of the case are very remarkable. This case directs investors’ attention to place greater efforts on certain aspects of operational risk and due diligence on not only hedge funds but also other investment managers. Normally investors conduct operational due diligence on the fund and its operations. Investors also vet fund external parties such as prime brokers, custodians, accountants and fund administrators. Yet, investors normally do not suspect the quality of short-term fund investments. In this case, the short-terms investments were the source of unforeseen yet substantial risk. Research limitations/implications Stakeholders in hedge funds need to carefully investigate the issuer of and the quality of short-term investments that a hedge fund invests in. Future research can investigate the association of hedge fund manager failure with a liquidity position of the fund. Practical implications Investors must thoroughly the entirety of the fund including short-term securities. Originality/value Normally, it is the hedge funds that commit the fraud against investors. In this case, it is the multi-billion hedge funds run by sophisticated fund managers, who are the victims.

Hedge funds vs SEO firms: a comparative analysis

2017 ◽  
Vol 13 (1) ◽  
pp. 2-20 ◽  
Author(s):  
Robert Martin Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Hedge Funds ◽  
Investment Decision ◽  
Hedge Fund ◽  
Optimal Investment ◽  
Seasoned Equity Offerings ◽  
Superior Performance ◽  
Content Type ◽  
Long Run ◽  
Portfolio Approach ◽  
Practical Implications

Purpose The purpose of this paper is to determine if hedge funds perform poorly as claimed by more recent research. The authors find hedge funds perform well from 2001 to 2013 when compared to sample of firms known to experience superior performance, namely, a sample of seasoned equity offerings (SEOs). Design/methodology/approach This paper uses a portfolio approach in comparing the performance of hedge funds and SEO firms. Other comparisons involve a number of common methodologies used to compute and analyze short-run and long-run returns. Findings Contrary to a growing and prevalent belief, the paper offers evidence hedge funds as a whole have performed well for a recent 13-year period. This finding includes periods up to six years around SEO announcement months. Research limitations/implications This paper is limited to examining monthly returns for a portfolio of hedge funds. This limitation led to incorporating a portfolio approach. Practical implications The findings suggest that a portfolio of hedge funds are an important investment consideration. This consideration has practical implications because investing in a portfolio of hedge funds has become more available for all investors in recent years. Social implications Society can be enhanced as this paper helps future investors make optimal investment decisions. Originality/value This paper adds to the hedge fund research by being the first paper to compare the performance of hedge funds with that for firms undergoing an important corporate event. The findings are new and can impact investment decision making.

scholarly journals A Robust Application of the Arbitrage Pricing Theory: Evidence from Nigeria

2017 ◽  
Vol 9 (1) ◽  
pp. 141
Author(s):  
Oyetayo Oluwatosin J. ◽  
Adeyeye Patrick Olufemi
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Ordinary Least Squares ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Expected Return ◽  
Long Run ◽  
Short Run ◽  
Pricing Theory ◽  
Relationship Of

Arbitrage pricing theory (APT) is a testable theory based on the idea that in competitive financial markets arbitrage will ensure that riskless assets provide the same expected return. We sought to confirm the relevance of the arbitrage pricing theory in Nigeria. Guided by a good understanding of macroeconomic variables and stock price movements as found in the extant literature on arbitrage pricing theory (APT), we specified our APT equation for estimation. Having satisfied the integration and co-integration issues, we employ the error-correction (ECM) and the fully modified ordinary least squares (FMOLS) methods for the short-run and long-run regressions. Our short-run results seem to agree with existing theories on APT thus confirming that APT is relevant in Nigeria. However, the long-run relationship of stock returns and RGDP was found to be contentious. Even though our result runs contrary to predictions on the relationship between the two, we found peculiar events and circumstances within the Nigerian macroeconomic context that provides logical reasons for the deviation.

Private public distinction of the target and the long run operating performance of acquirers

2016 ◽  
Vol 28 (1) ◽  
pp. 38-58 ◽  
Author(s):  
Syed M. M. Shams ◽  
Abeyratna Gunasekarage
Keyword(s):  
Stock Returns ◽  
Operating Performance ◽  
Cash Flows ◽  
Content Type ◽  
Organisational Form ◽  
Long Run ◽  
Two Samples ◽  
Short Run ◽  
Private And Public ◽  
Abnormal Stock Returns

Purpose – The purpose of this study is to examine whether the acquirers of private targets outperform their peers that acquire public targets in the long run. Design/methodology/approach – Using two samples of acquirers of private and public targets, this paper analyses their short-run market performance and long-run operating performance. Univariate analyses and multiple regressions are used to analyse abnormal stock returns and abnormal cash flow performances of bidders. Findings – Acquirers of private targets earn significantly higher abnormal return than acquirers of public targets during the announcement period. Similarly, the long-run operating performance of acquirers of private targets is significantly higher than that of the acquirers of public targets. However, the performance difference between two groups is more pronounced when cash flows are scaled by the market value of acquirers. Originality/value – This is the first Australian study to examine whether the long-run operating performance of acquirers depends on the organisational form of the target acquired.

Behavior of Indian sectoral stock price indices in the post subprime crisis period

2015 ◽  
Vol 12 (1) ◽  
pp. 15-29 ◽  
Author(s):  
Harsh Vardhan ◽  
Pankaj Sinha ◽  
Madhu Vij
Keyword(s):  
Stock Price ◽  
Decomposition Analysis ◽  
Policy Formulation ◽  
Subprime Crisis ◽  
Investment Strategies ◽  
Content Type ◽  
Crisis Period ◽  
Specific Investment ◽  
Long Run ◽  
Short Run

Purpose – The purpose of this paper is to demonstrate importance of usage of sector indices which provides insight for sector specific investment strategies and direction for suitable policy formulation for the Indian industry. It investigates long run, short run and causality relationships between eight identified sector indices and Sensex for the post subprime period. Design/methodology/approach – The study uses Vector Error Correction Model (VECM) for econometric analysis. It employs Generalized Impulse Response and Variance Decomposition analysis for developed multivariate framework in order to provide information about precise interplay of the sector indices. Findings – Long-term relationships between sector indices were determined by the usage of VECM indicating minimal benefits from diversifying investments to different sectors. Limited lead – lag short run relationships between sector indices were observed. Banking index played a predominant and integrating role in moving other indices. During this period of recovery; most sectors were protected and provided marginally better returns due to robust Banking policy. Realty and Metal were other significant drivers influencing remaining sectors contemporaneously. The study for the post subprime crisis period helps to understand the importance and behavior of interrelated sector indices and Sensex in the dynamic economic environment. Practical implications – The study clearly provides direction for sector specific investment strategies and policy formulation. Originality/value – The study highlights utility and importance of usage of sector indices. No study using sector indices for the Indian economy have been done earlier employing VAR for the post subprime crisis period.

Sign in / Sign up

Export Citation Format

Share Document