When the Start Matters: The Timing of Hedge Fund Inceptions
65 Pages Posted: 24 Aug 2018 Last revised: 27 Jan 2019
Date Written: January 26, 2019
We examine whether hedge fund management companies time fund starts to exploit investor sentiment. Using three proxies for hedge fund investor sentiment, we classify the state of the market as a hot or cold market. We find significantly more fund inceptions in hot markets than in cold markets. Moreover, funds opened in hot markets exhibit poor subsequent performance, shorter survival, and higher operational risk. Investor clientele seems to vary with market conditions, and we find a dumb-money effect for hot-market incepted funds. Overall, the timing of hedge fund inceptions is not in the best interest of investors.
Keywords: Hedge Fund Starts, Market Timing, Investor Sentiment, Agency Issues
JEL Classification: G23
Suggested Citation: Suggested Citation