Hedge Fund Activists: Value Creators or Good Stock Pickers?

58 Pages Posted: 23 Jun 2020 Last revised: 22 Jan 2021

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; University of Toulouse 1 - Université Toulouse 1 Capitole; Toulouse School of Economics; European Corporate Governance Institute (ECGI); American College of Governance Counsel

Ye Wang

School of Banking and Finance, University of International Business and Economics

Date Written: January 21, 2021

Abstract

This paper considers two competing hypotheses for the positive abnormal stock returns of firms targeted by activist hedge funds in both the short term and the long term: are they value creators or good stock pickers? Using matching to mitigate selection effects, we find that activists’ targets do not outperform ex ante similar control firms; this suggests that activists are good stock pickers, not value creators. We also observe abnormal returns around filings disclosing material changes in activist ownership. This too supports good stock picking as the more plausible hypothesis. Overall, our evidence indicates that hedge fund activism does not seem to benefit the buy-and-hold shareholders of targeted firms.

Keywords: hedge funds, stock pickers, timing skills

JEL Classification: G00, G10, G11, G34

Suggested Citation

Cremers, K. J. Martijn and Giambona, Erasmo and Sepe, Simone M. and Wang, Ye, Hedge Fund Activists: Value Creators or Good Stock Pickers? (January 21, 2021). Available at SSRN: https://ssrn.com/abstract=3614029 or http://dx.doi.org/10.2139/ssrn.3614029

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Erasmo Giambona (Contact Author)

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 640
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Simone M. Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

University of Toulouse 1 - Université Toulouse 1 Capitole ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Toulouse School of Economics ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

American College of Governance Counsel ( email )

555 8th Avenue, Suite 1902
New York, NY 10018
United States

Ye Wang

School of Banking and Finance, University of International Business and Economics ( email )

Beijing
China

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