Hedge Funds and Quasi-Indexers: Where do Alphas Come From?

42 Pages Posted: 4 Jan 2019 Last revised: 15 Jan 2020

See all articles by Xinyu Cui

Xinyu Cui

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: January 14, 2020

Abstract

Hedge funds earn positive ex-post abnormal returns and avoid negative abnormal returns when trading against highly-diversified low-turnover institutional investors (quasi-indexers). This pattern is pronounced for short- and long-term holding periods, as well as if trading is conditional on return predictability associated with well-known market anomalies. It seems to be driven by the preference of quasi-indexers for liquid, high-market beta stocks, which tend to exhibit low future abnormal returns. 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, Hedge Funds and Quasi-Indexers: Where do Alphas Come From? (January 14, 2020). Available at SSRN: https://ssrn.com/abstract=3304606 or http://dx.doi.org/10.2139/ssrn.3304606

Xinyu Cui

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

Register to save articles to
your library

Register

Paper statistics

Downloads
88
Abstract Views
604
rank
296,765
PlumX Metrics