Abstract

http://ssrn.com/abstract=1906932
 
 

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Hedge Fund Crowds and Mispricing


Blerina Bela Reca


The University of Toledo - Department of Finance

Richard W. Sias


University of Arizona - Department of Finance

Harry J. Turtle


West Virginia University - College of Business & Economics

October 22, 2013

Finance Down Under 2014 Building on the Best from the Cellars of Finance

Abstract:     
Recent models and the popular press suggest that hedge funds follow similar strategies resulting in crowded equity trades that destabilize prices. Inconsistent with this assertion, we find that hedge fund equity portfolios are remarkably independent. Moreover, when hedge funds do buy and sell the same stocks, their demand shocks drive prices toward, rather than away from, fundamental values. Even in periods of extreme market stress, we find little evidence that hedge funds exert negative externalities on each other or security prices due to crowded trades.

Number of Pages in PDF File: 72

Keywords: hedge funds, crowds, financial crisis

JEL Classification: G01, G12, G14, G23

working papers series


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Date posted: August 16, 2011 ; Last revised: October 29, 2013

Suggested Citation

Reca, Blerina Bela and Sias, Richard W. and Turtle, Harry J., Hedge Fund Crowds and Mispricing (October 22, 2013). Finance Down Under 2014 Building on the Best from the Cellars of Finance. Available at SSRN: http://ssrn.com/abstract=1906932 or http://dx.doi.org/10.2139/ssrn.1906932

Contact Information

Blerina Bela Reca
The University of Toledo - Department of Finance ( email )
Stranahan Hall
2801 W. Bancroft
Toledo, OH 43606
United States
419 530 4056 (Phone)
Richard W. Sias (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
Harry J. Turtle
West Virginia University - College of Business & Economics ( email )
P.O. Box 6025
Morgantown, WV 26506
United States
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