Do Hedge Fund Managers Identify and Share Profitable Ideas?

Abstract:     
I study proprietary data from a confidential website where a select group of fundamentals-based hedge fund managers privately share investment ideas. The investors I analyze are not easily defined: They exploit traditional tangible asset valuation discrepancies such as buying high book-to-market stocks, but spend more time analyzing intrinsic value, and special situation investments. Evidence suggests these specific investors have significant stock-picking skills. Interestingly, these skilled investors share their profitable ideas with their competition. I test various private information exchange theories in the context of my data and determine the investors in my sample share ideas to receive constructive feedback, gain access to a broader set of profitable ideas, and to attract additional arbitragers to their asset market.

Keywords: Value investing, abnormal returns, networks, hedge funds, market efficiency, Valueinvestorsclub.com, internet message boards

JEL Classifications: G10, G11, G14

Working Paper Series