Hedge Fund Hold'em

45 Pages Posted: 31 May 2019 Last revised: 7 Nov 2019

See all articles by Yan Lu

Yan Lu

University of Central Florida - College of Business Administration

Sandra Mortal

University of Alabama - Culverhouse College of Commerce & Business Administration

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: May 22, 2019

Abstract

We find that hedge fund managers who do well in poker tournaments have significantly better fund performance. This effect is stronger for tournaments with more entrants, larger buy-ins, larger cash prizes and for managers who win multiple tournaments, suggesting poker skills are correlated with fund management skills. Investors appear cognizant of this as after a manager wins a poker tournament, net flows to the manager’s fund increase significantly. These increases are concentrated in cases where there is media coverage of the manager’s poker playing, when the tournament win is bigger, and for more prominent tournaments (e.g. the World Series of Poker). Along with higher net flows, fund alpha also decreases significantly following the tournament win compared to a sample of matched peers, especially in cases where net inflows are highest, suggesting decreasing returns to scale erode the informativeness of the poker win signal. Given this, hedge fund investors would be better off investing in an otherwise similar manager without poker tournament success.

Keywords: Poker, Hedge funds, Investor flows, Alpha erosion

Suggested Citation

Lu, Yan and Mortal, Sandra and Ray, Sugata, Hedge Fund Hold'em (May 22, 2019). Available at SSRN: https://ssrn.com/abstract=3392130 or http://dx.doi.org/10.2139/ssrn.3392130

Yan Lu

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Sandra Mortal

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Sugata Ray (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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