Abstract

http://ssrn.com/abstract=2021499
 
 

References (24)



 


 



Contrarian Hedge Funds and Momentum Mutual Funds


Massimo Massa


INSEAD - Finance

Andrei Simonov


Michigan State University - Eli Broad Graduate School of Management; Centre for Economic Policy Research (CEPR); Gaidar Institute for Economic Policy; SITE

Shan Yan


Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

March 13, 2012


Abstract:     
We study how hedge fund performance is related to the presence of mutual funds operating in the same asset class. We argue that hedge funds are able to exploit the constraints of the mutual funds related to both the high correlation between flows and value of investment and their tendency to cater to investors by invest in stocks that are 'hot'. Hedge funds exploit these features of the mutual funds, especially the domestic ones. We show that the performance of the hedge funds is significantly higher when mutual fund market coverage is higher. This effect is mostly concentrated among domestic mutual funds and is stronger the higher investment horizon of the hedge funds. A high presence of the mutual fund industry helps to explain 28% of the yearly hedge fund performance. Hedge funds are more likely to be 'alpha' in the presence of a high degree of mutual fund market coverage and their probability of survival is higher. Hedge funds employ contrarian strategies at the very moment in which mutual funds ride market expectations. The degree by which hedge funds react to changes in public information is directly related to the degree of mutual fund market coverage.

Number of Pages in PDF File: 37

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Date posted: March 15, 2012  

Suggested Citation

Massa, Massimo and Simonov, Andrei and Yan, Shan, Contrarian Hedge Funds and Momentum Mutual Funds (March 13, 2012). Available at SSRN: http://ssrn.com/abstract=2021499 or http://dx.doi.org/10.2139/ssrn.2021499

Contact Information

Massimo Massa
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)
Andrei Simonov (Contact Author)
Michigan State University - Eli Broad Graduate School of Management ( email )
315 Eppley Center
East Lansing, MI 48824-1122
United States
HOME PAGE: http://www.andreisimonov.com
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Gaidar Institute for Economic Policy ( email )
Moscow
Russia
SITE ( email )
P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden
Shan Yan
Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )
East Lansing, MI 48824-1121
United States
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References:  24

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