When the Start Matters: The Timing of Hedge Fund Inceptions

65 Pages Posted: 24 Aug 2018 Last revised: 27 Jan 2019

See all articles by Lin Sun

Lin Sun

George Mason University - Department of Finance

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: January 26, 2019

Abstract

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

Sun, Lin and Sun, Zheng and Zheng, Lu, When the Start Matters: The Timing of Hedge Fund Inceptions (January 26, 2019). Available at SSRN: https://ssrn.com/abstract=3231259 or http://dx.doi.org/10.2139/ssrn.3231259

Lin Sun (Contact Author)

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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