The Geography of Hedge Funds

Review of Financial Studies, Forthcoming

38 Pages Posted: 15 Aug 2008

See all articles by Melvyn Teo

Melvyn Teo

Singapore Management University - Lee Kong Chian School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 15, 2008


This paper analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asian-focused hedge funds. We find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72 percent per year. The local information advantage is pervasive across all major geographical regions, but is strongest for Emerging Market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. We show also that distant funds, especially those based in the U.S. and the U.K., are able to raise more capital, charge higher fees, and set longer redemption periods, despite their underperformance relative to nearby funds. It appears that distant funds trade investment performance for better access to capital.

Keywords: hedge funds, information asymmetry, geography

JEL Classification: G11, G12, G23

Suggested Citation

Teo, Melvyn, The Geography of Hedge Funds (August 15, 2008). Review of Financial Studies, Forthcoming, Available at SSRN:

Melvyn Teo (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

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