Hedge Fund Innovation

65 Pages Posted: 3 Nov 2012 Last revised: 21 Dec 2018

See all articles by Arjen Siegmann

Arjen Siegmann

VU University Amsterdam

Denitsa Stefanova

Luxembourg School of Finance

Marcin Zamojski

University of Gothenburg, Centre for Finance

Date Written: December 21, 2018

Abstract

We document cycles of innovation fueled by early-mover advantages in the hedge-fund industry. Our method involves clustering hedge funds based on their self-reported strategic risk profile at inception. The 'innovative funds', compared with their 'imitators', survive twice as long while having—at 0.76%—three times higher monthly alphas. The outperformance is persistent and robust to fund-family effects, common biases and possible restatements of the reported data. As an aspect of 'skill', innovativeness is associated with higher incentive fees. A feasible investment strategy based on fund innovativeness generates a significant alpha of 0.58% per month.

Keywords: hedge funds, innovation, followers, excess returns, institutional design, first-mover advantage

JEL Classification: G15, G23

Suggested Citation

Siegmann, Arjen and Stefanova, Denitsa and Zamojski, Marcin, Hedge Fund Innovation (December 21, 2018). Available at SSRN: https://ssrn.com/abstract=2170435 or http://dx.doi.org/10.2139/ssrn.2170435

Arjen Siegmann

VU University Amsterdam ( email )

De Boelelaan 1105
Dept. of Finance
Amsterdam, NOT IN US OR CANADA 1081 HV
Netherlands
+31205986581 (Phone)

HOME PAGE: http://personal.vu.nl/a.h.siegmann

Denitsa Stefanova

Luxembourg School of Finance ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

Marcin Zamojski (Contact Author)

University of Gothenburg, Centre for Finance ( email )

Box 640
Gothenburg, 405 30
Sweden

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