How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings

Posted: 22 Jun 2009

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

Jin Xu

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

Abstract

Compared to mutual funds, hedge funds prefer smaller, opaque value securities, and have higher turnover and more active share bets. Decomposing returns into three components, we find that hedge funds are better than mutual funds at stock picking by only 1.32% per year on a value-weighted basis, and this result is insignificant on an equal-weighted basis or with price-to-sales benchmarks. Hedge funds exhibit no ability to time sectors or pick better stock styles. Surprisingly, we find only weak evidence of differential ability between hedge funds. Overall, our study raises serious questions about the perceived superior skill of hedge fund managers.

Keywords: G11, G23

Suggested Citation

Griffin, John M. and Xu, Jin, How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings (July 2009). The Review of Financial Studies, Vol. 22, Issue 7, pp. 2331-2370, 2009, Available at SSRN: https://ssrn.com/abstract=1422415 or http://dx.doi.org/hhp026

John M. Griffin (Contact Author)

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

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Jin Xu

affiliation not provided to SSRN

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