Aggregate Hedge Fund Flows and Asset Returns

37 Pages Posted: 20 Aug 2008 Last revised: 16 Sep 2009

See all articles by Ashley Wang

Ashley Wang

Federal Reserve Board

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: August 2008

Abstract

Although several papers study the pattern of cash flows into individual hedge funds to examine how investors choose among different funds, little is known at the macro level about how hedge fund investors as a group respond to aggregate fund returns and market wide price movements. This paper analyzes the pattern in quarterly aggregate flows into the hedge fund sector from 1994 to 2007. We document several main results. First, we find a significant and positive relation between aggregate flows and past aggregate hedge fund returns, indicating that hedge fund investors as a group chase past aggregate performance. Second, we report a significant and positive relation between aggregate flows and contemporaneous aggregate hedge fund returns. Third, we find marginal evidence on a negative relation between aggregate fund flows and subsequent hedge fund returns, suggesting that hedge fund investors as a group are unable to successfully time hedge fund returns. We also find that investors put money into the hedge fund sector following high stock market returns and low returns on Treasury bills, while stock and bond market returns are not related to past aggregate hedge fund flows.

Keywords: Hedge Fund Flow, Hedge Fund Performance

JEL Classification: G10

Suggested Citation

Wang, Ashley and Zheng, Lu, Aggregate Hedge Fund Flows and Asset Returns (August 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1236502 or http://dx.doi.org/10.2139/ssrn.1236502

Ashley Wang (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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