Best Ideas of Hedge Funds

34 Pages Posted: 12 Dec 2014 Last revised: 23 Jun 2015

See all articles by Sergey Maslennikov

Sergey Maslennikov

University of Texas at Austin, Department of Finance

Parker Hund

University of Texas at Austin - Department of Finance

Date Written: June 22, 2015

Abstract

We provide new compelling evidence that hedge funds possess investment skill. Using the longest-in-literature unbiased sample of hedge funds, we show that large holdings of past winners earn 7% annual benchmark-adjusted return. This remarkable performance is consistent with the notion that large holdings represent managers' best ideas. Our sample goes back to 1980 and does not miss non-surviving hedge funds, or those that do not voluntarily report to commercial databases. It consists of all investment managers that must report to the SEC, except those that we identify as managers other than hedge funds. While publicly available data is not sufficient to identify hedge funds directly, our "reverse identification" method achieves both high sensitivity and specificity. We also find weaker yet significant evidence of investment skill in standard indicators such as average fund performance and performance persistence.

Keywords: hedge fund, skill, bias, survivorship, self-reporting, 13F

JEL Classification: G23, G20, G14

Suggested Citation

Maslennikov, Sergey and Hund, Parker, Best Ideas of Hedge Funds (June 22, 2015). Available at SSRN: https://ssrn.com/abstract=2536968 or http://dx.doi.org/10.2139/ssrn.2536968

Sergey Maslennikov (Contact Author)

University of Texas at Austin, Department of Finance ( email )

Austin, TX
United States

Parker Hund

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

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