Hedge Fund Crowds and Mispricing
44 Pages
Posted: 16 Aug 2011
Last revised: 8 Dec 2014
Clemson University
University of Arizona - Department of Finance
Colorado State University, Fort Collins - Department of Finance & Real Estate
Date Written: September 5, 2014
Abstract
Recent models and the popular press suggest that large groups of hedge funds follow similar strategies resulting in crowded equity positions that destabilize markets. Inconsistent with this assertion, we find that hedge fund equity portfolios are remarkably independent. Moreover, when hedge funds do buy and sell the same stocks, their demand shocks are, on average, positively related to subsequent raw and risk-adjusted returns. Even in periods of extreme market stress, we find no evidence that hedge fund demand shocks are inversely related to subsequent returns. Our results have important implications for the ongoing debate regarding hedge fund regulation.
Keywords: hedge funds, crowds, market efficiency
JEL Classification: G01, G12, G14, G23
Suggested Citation:
Suggested Citation
Zykaj, Blerina Bela and Sias, Richard W. and Turtle, Harry J., Hedge Fund Crowds and Mispricing (September 5, 2014). Available at SSRN: https://ssrn.com/abstract=1906932 or http://dx.doi.org/10.2139/ssrn.1906932
