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Skin or Skim? Inside Investment and Hedge Fund Performance

65 Pages Posted: 8 Jun 2017 Last revised: 11 Jan 2018

Arpit Gupta

NYU Stern School of Business

Kunal Sachdeva

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2017

Abstract

Using a comprehensive and survivor bias-free dataset of US hedge funds, we document the role that inside investment plays in managerial compensation and fund performance. We find that funds with greater investment by insiders outperform funds with less "skin in the game" on a factor-adjusted basis and exhibit high return persistence. These results suggest that managers earn outsize rents by operating trading strategies further from their capacity constraints when managing their own money. Our findings have implications for optimal portfolio allocations of institutional investors and models of delegated asset management.

Keywords: hedge funds, ownership, managerial skill, alpha, compensation

JEL Classification: G23, G32, J33, J54

Suggested Citation

Gupta, Arpit and Sachdeva, Kunal, Skin or Skim? Inside Investment and Hedge Fund Performance (December 13, 2017). NYU Working Paper No. 2451/38717. Available at SSRN: https://ssrn.com/abstract=2983030

Arpit Gupta (Contact Author)

NYU Stern School of Business ( email )

New York, NY
United States

HOME PAGE: http://arpitgupta.info

Kunal Sachdeva

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://kunalsachdeva.com

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