Do Outflows Drive Hedge Fund Stock-Picking Skills?

30 Pages Posted: 29 Jul 2019 Last revised: 30 Nov 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

Date Written: November 28, 2020

Abstract

Analyzing trading of hedge funds facing substantial outflows, we find that hedge funds that trade against the flow display significant stock-picking skills. Stocks purchased by hedge funds facing large outflows deliver positive ex-post abnormal returns. Such “revealed under pressure” stock-picking skills are higher after 2007-2008 financial crisis and for hedge funds with larger size, more illiquid assets, or stronger incentives to perform to build up a track record. Funds that engage in the trading against the flow also have higher chances of survival over the consequent quarter.

Keywords: Flows, Trading skills, Hedge funds

JEL Classification: G11, G12, G23

Suggested Citation

Cui, Xinyu and Kolokolova, Olga, Do Outflows Drive Hedge Fund Stock-Picking Skills? (November 28, 2020). Available at SSRN: https://ssrn.com/abstract=3426553 or http://dx.doi.org/10.2139/ssrn.3426553

Xinyu Cui (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Olga Kolokolova

University of Manchester - Alliance Manchester Business School ( email )

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

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