scholarly journals Hedge Fund Flows and Performance Streaks: How Investors Weigh Information

2021 ◽  
Author(s):  
Guillermo Baquero ◽  
Marno Verbeek
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Cash Flows ◽  
Fund Flows ◽  
Hot Hand ◽  
Highly Sensitive ◽  
Wide Range ◽  
Processing Abilities ◽  
And Performance ◽  
Types Of Information

Cash flows to hedge funds are highly sensitive to performance streaks, a streak being defined as subsequent quarters during which a fund performs above or below a benchmark, even after controlling for a wide range of common performance measures. At the same time, streaks have limited predictive power regarding future fund performance. This suggests investors weigh information suboptimally, and their decisions are driven too strongly by a belief in continuation of good performance, consistent with the “hot hand fallacy.” The hedge funds that investors choose to invest in do not perform significantly better than those they divest from. These findings are consistent with overreaction to certain types of information and do not support the notion that sophisticated investors have superior information or superior information processing abilities. This paper was accepted by David Simchi-Levi, finance.

scholarly journals HEDGE FUNDS: RISK AND PERFORMANCE

2018 ◽  
Vol 06 (01) ◽  
pp. 1850003
Author(s):  
SANGHEON SHIN ◽  
JAN SMOLARSKI ◽  
GÖKÇE SOYDEMIR
Keyword(s):  
Risk Factors ◽  
Hedge Funds ◽  
Factor Model ◽  
Explanatory Power ◽  
Hedge Fund ◽  
Investment Strategy ◽  
Time Varying ◽  
Asset Class ◽  
And Performance ◽  
Fund Portfolio

This paper models hedge fund exposure to risk factors and examines time-varying performance of hedge funds. From existing models such as asset-based style (ABS)-factor model, standard asset class (SAC)-factor model, and four-factor model, we extract the best six factors for each hedge fund portfolio by investment strategy. Then, we find combinations of risk factors that explain most of the variance in performance of each hedge fund portfolio based on investment strategy. The results show instability of coefficients in the performance attribution regression. Incorporating a time-varying factor exposure feature would be the best way to measure hedge fund performance. Furthermore, the optimal models with fewer factors exhibit greater explanatory power than existing models. Using rolling regressions, our customized investment strategy model shows how hedge funds are sensitive to risk factors according to market conditions.

The Life Cycle of Hedge Funds: Fund Flows, Size, Competition, and Performance

2012 ◽  
Vol 02 (01) ◽  
pp. 1250003 ◽  
Author(s):  
Mila Getmansky
Keyword(s):  
Hedge Funds ◽  
Fund Performance ◽  
Life Cycles ◽  
Fund Flows ◽  
Optimal Size ◽  
Market Impact ◽  
Specific Factors ◽  
And Performance ◽  
Capacity Constrained ◽  
Asset Size

This paper analyzes the life cycles of hedge funds. Using the Lipper TASS database it provides category and fund specific factors that affect the survival probability of hedge funds. The findings show that in general, investors chasing individual fund performance, thus increasing fund flows, decrease probabilities of hedge funds liquidating. However, if investors chase a category of hedge funds that has performed well (favorably positioned), then the probability of hedge funds liquidating in this category increases. We interpret this finding as a result of competition among hedge funds in a category. As competition increases, marginal funds are more likely to be liquidated than funds that deliver superior risk-adjusted returns. We also find that there is a concave relationship between performance and lagged assets under management. The implication of this study is that an optimal asset size can be obtained by balancing out the effects of past returns, fund flows, competition, market impact, and favorable category positioning that are modeled in the paper. Hedge funds in capacity constrained and illiquid categories are subject to high market impact, have limited investment opportunities, and are likely to exhibit an optimal size behavior.

The Life Cycle of Hedge Funds

2017 ◽  
Author(s):  
Mila Getmansky Sherman ◽  
Rachel (Kyungyeon) Koh
Keyword(s):  
Life Cycle ◽  
Hedge Funds ◽  
Risk Measures ◽  
Hedge Fund ◽  
Nonlinear Function ◽  
Fund Flows ◽  
Related Factors ◽  
Thomson Reuters ◽  
The Right ◽  
Asset Size

This chapter analyzes the life cycle of hedge funds. Analysis using the Thomson Reuters Lipper TASS database reveals industry-related and fund-specific factors affecting the survival probabilities of hedge funds. Analysis of hedge fund flows and asset sizes can offer insights into a fund’s future survival. Fund performance is a nonlinear function of a fund’s asset size. A fund can obtain an optimal asset size by balancing the effects of past returns, fund flows, market impact, and competition. Competition among hedge funds using similar strategies presents challenges. To survive, funds employ dynamic strategies, move nimbly from market to market, and develop unique strengths. Being an effective market and strategy timer is critical because funds using the right strategy at the right time are more likely to survive. The chapter also analyzes the last stage of the hedge fund life cycle—liquidation or closure. Fund characteristics, risk measures, and style-related factors can help predict fund liquidation.

Investment Strategies of Hedge Funds

2021 ◽  
pp. 112-135
Author(s):  
Hany A. Shawky
Keyword(s):  
Capital Structure ◽  
Hedge Funds ◽  
Yield Curve ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Fixed Income ◽  
Relative Value ◽  
Merger Arbitrage ◽  
Arbitrage Strategy ◽  
And Performance

This chapter reviews a number of different hedge fund strategies, including equity hedge, long/short, market neutral, relative value arbitrage, convertible arbitrage strategy, capital structure arbitrage strategy, fixed income arbitrage strategy, yield curve arbitrage strategy, other relative value arbitrage strategies, emerging markets strategies, global macro strategies, event driven strategies, distressed securities, and merger arbitrage strategies. In addition, the author discusses the growth and performance of different strategies, as well as fraud, fund failures, activism, and regulation.

scholarly journals AN EVALUATION OF HEDGE FUNDS: RISK, RETURN AND PITFALLS

2002 ◽  
Vol 47 (01) ◽  
pp. 153-171 ◽  
Author(s):  
FRANCIS KOH ◽  
DAVID K. C. LEE ◽  
KOK FAI PHOON
Keyword(s):  
Hedge Funds ◽  
Legal Status ◽  
Hedge Fund ◽  
Empirical Work ◽  
Risk And Return ◽  
Net Worth ◽  
Empirical Risk ◽  
And Performance ◽  
Short Sell ◽  
Risk Dimensions

Hedge funds are collective investment vehicles fast becoming popular with high net worth individuals as well as institutional investors. These are funds that are often established with a special legal status that allows their investment managers a free hand to use derivatives, short sell and exploit leverage to raise returns and cushion risk. Given that they have substantial latitude to invest, it is instructive to examine the performance of hedge funds as compared to other forms of managed funds. This paper provides an overview of hedge funds and discusses their empirical risk and return profiles. It also poses some concerns regarding the empirical measurements. Given the complexity of hedge fund investments, meaningful analytical methods are required to provide greater risk transparency and performance reporting. Hedge fund performance is also beset by a number of practical issues generating "practical risks". These risks are not fully addressed by the usual risk-adjusted performance measures in the literature. A penalty function to discount these extraneous risk dimensions is proposed. The paper concludes that further empirical work is required to provide informative statistics about the risk and return of hedge funds.

The Oxford Handbook of Hedge Funds

2021 ◽  
Keyword(s):  
Hedge Funds ◽  
Optimal Taxation ◽  
Private Equity ◽  
Hedge Fund ◽  
Global Perspective ◽  
Fund Flows ◽  
Theoretical Approaches ◽  
The Us ◽  
Hedge Fund Activism ◽  
The Impact

The Oxford Handbook of Hedge Funds provides a comprehensive look at the hedge fund industry from a global perspective. The chapters are organized into five main parts. After the introductory chapter in Part I, Part II begins in Chapter 2 with an analysis of the main factors that have affected the operation of hedge funds. Chapter 3 explains the concept of hedge fund flows. Chapter 4 examines hedge fund manager fees and contracts. Part III focuses on different types of hedge fund strategies. The broad array of strategies are summarized in Chapter 5. Chapter 6 empirically examines the performance of hedge fund strategies. Chapter 7 compares the strategies of hedge funds to private equity funds. Chapter 8 examines hedge fund herding. Chapter 9 examines hedge fund commodity trading advisors and leverage. Chapter 10 examines financial technology in hedge fund strategies. In Part IV, hedge fund activism in the US is examined in Chapter 11. The US and international literature on hedge fund activism is reviewed in different perspectives in Chapters 12 and 13. Case studies are provided in Chapter 14. The impact of activism on large company innovation is discussed in Chapter 15. In Part V, Chapter 16 examines whether hedge funds may engage in misreporting and fraud. Chapter 17 reviews work on hedge fund misconduct and detection. Chapter 18 discusses compliance among hedge funds. Chapter 19 examines theoretical approaches to hedge fund regulation. Chapter 20 examines optimal taxation. Chapter 21 examines hedge funds from a political economy context.

Hedge Funds and Performance Persistence

2017 ◽  
Author(s):  
Nan Qin ◽  
Ying Wang
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Empirical Literature ◽  
Performance Persistence ◽  
Attrition Rates ◽  
Short And Long Term ◽  
And Performance ◽  
Long Term Performance ◽  
Term Performance

Despite the exponential growth of global hedge fund assets since the 1990s, the high attrition rates in the industry have raised an important issue about hedge fund return persistence. This chapter discusses the various statistical methodologies in measuring performance persistence and provides a comprehensive review of the empirical literature on short- and long-term performance persistence. In particular, the literature suggests that fund strategies and characteristics are related to performance persistence. The chapter also discusses three important issues: return smoothing, the use of option-like strategies, and data biases. The chapter provides additional empirical evidence on performance persistence, using a portfolio approach and a hedge fund sample from the Trading Advisor Selection System (TASS) database between 1994 and 2015.

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