Do Prime Brokers Induce Similarities in Hedge Funds Performance?
1 Pages Posted: 14 Feb 2015
Date Written: February 12, 2015
Early studies show that hedge fund performance is correlated across funds. I empirically document that similarities in hedge fund returns are associated with the presence of the same prime broker. Using data on prime brokerage relationships from 2000 to 2012, I estimate that dealing with the same broker increases performance correlation across funds of around 53%. My results are robust to controlling for the standard systematic risk factors, to different performance similarity proxies, to different subsamples, and to other possible determinants of performance similarity as the hedge funds’ domicile and investment style.
Keywords: Hedge Funds, Prime Brokers, Performance
JEL Classification: G2, G23
Suggested Citation: Suggested Citation