Abstract

http://ssrn.com/abstract=1563703
 
 

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Does Recognition Explain the Media-Coverage Discount? Contrary Evidence from Hedge Funds


Gideon Ozik


EDHEC Business School

Ronnie Sadka


Boston College - Carroll School of Management

March 5, 2010


Abstract:     
Previous studies document a media-coverage discount in the cross-section of stock returns, which is attributed to Merton's investor-recognition hypothesis. This paper offers a natural experiment for this explanation by focusing on the media coverage of funds, not their underlying positions. Funds are not directly traded by investors; therefore one would not expect an investor-recognition discount in their cross-section. Yet, we document that hedge funds with media coverage underperform no-coverage funds by 3.5% annually over 1999-2008. Although media coverage affects fund flow, underperformance is not channeled through investor fund flow. The effect is more pronounced in funds at the top and bottom of past performance as well as small funds. Since the paper finds that the media-coverage discount in the cross-section of funds is similar to that found in the cross-section of stocks, it follows that Merton's hypothesis need not be the only explanation for the media-coverage discount.

Number of Pages in PDF File: 32

Keywords: Information, Media coverage, Hedge funds, Fund flows, Asset pricing

JEL Classification: G12, G14

working papers series


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Date posted: March 5, 2010 ; Last revised: March 17, 2010

Suggested Citation

Ozik, Gideon and Sadka, Ronnie, Does Recognition Explain the Media-Coverage Discount? Contrary Evidence from Hedge Funds (March 5, 2010). Available at SSRN: http://ssrn.com/abstract=1563703 or http://dx.doi.org/10.2139/ssrn.1563703

Contact Information

Gideon Ozik
EDHEC Business School ( email )
Nice
France
Ronnie Sadka (Contact Author)
Boston College - Carroll School of Management ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
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