Share Restrictions and Investor Flows in the Hedge Fund Industry

49 Pages Posted: 20 Nov 2015 Last revised: 29 Mar 2019

See all articles by Bing Liang

Bing Liang

University of Massachusetts Amherst - Department of Finance

Christopher Schwarz

University of California at Irvine

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: March 7, 2019

Abstract

We study the effect of share restrictions on the flow-performance relation of individual hedge funds. Consistent with the predictions of our model, hedge funds exhibit a convex flow-performance relation in the absence of share restrictions, similar to mutual funds. However, in the presence of share restrictions, we find an increasingly inverted S-shaped relation. Our evidence is consistent with investors rationally endogenizing the expected future binding restrictions when investing (or disinvesting) their money. Our results on the impact of share restrictions also help reconcile past empirical work on the hedge fund flow-performance relation.

Keywords: hedge fund flows, investor flow restrictions, hedge fund flow-performance relation

JEL Classification: G23, G11

Suggested Citation

Liang, Bing and Schwarz, Christopher and Getmansky Sherman, Mila and Wermers, Russell R., Share Restrictions and Investor Flows in the Hedge Fund Industry (March 7, 2019). Available at SSRN: https://ssrn.com/abstract=2692598 or http://dx.doi.org/10.2139/ssrn.2692598

Bing Liang

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

Christopher Schwarz

University of California at Irvine ( email )

Irvine, CA 92697-3125
United States

Mila Getmansky Sherman (Contact Author)

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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