Capacity Constraints, Investor Information, and Hedge Fund Returns

41 Pages Posted: 22 Dec 2009 Last revised: 30 Jun 2011

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2, 2011


To identify capacity constraints in hedge funds and simultaneously gauge how well-informed hedge fund investors are, we need measures of investor demand that do not affect deployed hedge fund assets. Using new data on investor interest from a secondary market for hedge funds, this paper verifies the existence of capacity constraints in hedge fund returns. The results provide more mixed evidence on the informedness of hedge fund investors. Both buy and sell indications arrive following periods of fund outperformance. While buy indications have little incremental power to predict hedge fund performance over and above well-known forecasting variables, sell indications do somewhat better.

Keywords: hedge funds, capacity constraints, information, flows

JEL Classification: G11, G12, G23

Suggested Citation

Ramadorai, Tarun, Capacity Constraints, Investor Information, and Hedge Fund Returns (May 2, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN:

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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