On the Other Side of Hedge Fund Equity Trades

AFA 2021 Annual Meeting Paper

70 Pages Posted: 4 Jan 2019 Last revised: 19 Sep 2022

See all articles by Xinyu Cui

Xinyu Cui

University of Bristol; University of Manchester - Alliance Manchester Business School

Olga Kolokolova

University of Manchester - Alliance Manchester Business School

George Jiaguo Wang

Lancaster University Management School; New York University - Stern School of Business

Date Written: September 15, 2022

Abstract

Hedge funds earn positive ex-post abnormal returns and avoid negative abnormal returns on their equity portfolios when trading in the opposite direction of highly-diversified low-turnover institutional investors (quasi-indexers). This pattern seems to be driven by the preferences of quasi-indexers for high-market-beta stocks together with the ability of hedge funds to identify subsets of especially profitable trades. It remains pronounced when accounting for other determinants of hedge fund trades, such as stock liquidity, market anomalies, and major corporate events. Trading against other institutional investors or non-institutions does not result in abnormal performance for hedge funds.

Keywords: Institutional Trading, Alpha, Market Beta, Market Anomalies, Quasi-Indexers, Hedge Funds

JEL Classification: G12, G14, G23

Suggested Citation

Cui, Xinyu and Kolokolova, Olga and Wang, George Jiaguo, On the Other Side of Hedge Fund Equity Trades (September 15, 2022). AFA 2021 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=3304606 or http://dx.doi.org/10.2139/ssrn.3304606

Xinyu Cui

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Olga Kolokolova (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom
+441613062081 (Phone)

George Jiaguo Wang

Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, Lancashire LA1 4YX
United Kingdom
+44 1524 592 577 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/lums/people/george-wang

New York University - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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