Hedge Fund Styles: 2005- 2011

Posted: 1 Oct 2011 Last revised: 19 Oct 2017

See all articles by Li Cai

Li Cai

Illinois Institute of Technology - Stuart School of Business, IIT

Bing Liang

University of Massachusetts Amherst - Department of Finance

Date Written: November 1, 2011

Abstract

In this paper we study hedge fund styles by examining both self-reported classification and a return-based classification on a sample of hedge funds over the period of 2005 to 2011. Using seven versions of the Lipper/TASS data, we are able to track self-reported classification on an annual basis. We show that style shifts exist in the database, suggesting that the assumption of static hedge fund style is inappropriate. The two classifications are not consistent with each other; we construct a disagreement measure that captures the resulted difference in relative performance. We argue that the disagreement is related to manager skills rather than strategic misclassification. Further, we demonstrate that investors react positively to the disagreement measure and money flows to top-performing funds based on self-reported styles.

Suggested Citation

Cai, Li and Liang, Bing, Hedge Fund Styles: 2005- 2011 (November 1, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1922799 or http://dx.doi.org/10.2139/ssrn.1922799

Li Cai (Contact Author)

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

Chicago, IL 60661
United States

Bing Liang

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

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