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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
April 2, 2013
Abstract:
Recent models and the popular press propose that hedge funds follow similar strategies, resulting in crowded trades that destabilize prices. Inconsistent with conventional wisdom, we find little evidence that hedge funds crowd into the same stocks—their portfolios are remarkably independent. Moreover, when hedge funds do buy and sell the same stocks, their demand shocks appear to 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 their crowded trades.
Number of Pages in PDF File: 91
Keywords: hedge funds, crowds
JEL Classification: G12, G14, G2
working papers series
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Date posted: August 16, 2011
; Last revised: April 27, 2013
Suggested CitationReca, Blerina Bela, Sias, Richard W. and Turtle, Harry J., Hedge Fund Crowds and Mispricing (April 2, 2013). Available at SSRN: http://ssrn.com/abstract=1906932 or http://dx.doi.org/10.2139/ssrn.1906932
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