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

September 5, 2014


Abstract:     
Recent models and the popular press suggest that large groups of hedge funds follow similar strategies resulting in crowded equity positions that destabilize markets. 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 are, on average, positively related to subsequent raw and risk-adjusted returns. Even in periods of extreme market stress, we find no evidence that hedge fund demand shocks are inversely related to subsequent returns. Our results have important implications for the ongoing debate regarding hedge fund regulation.

Number of Pages in PDF File: 47

Keywords: hedge funds, crowds, market efficiency

JEL Classification: G01, G12, G14, G23

working papers series





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Date posted: August 16, 2011 ; Last revised: September 6, 2014

Suggested Citation

Reca, Blerina Bela and Sias, Richard W. and Turtle, Harry J., Hedge Fund Crowds and Mispricing (September 5, 2014). 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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