Hedge Fund Activists: Value Creators or Good Stock Pickers?

55 Pages Posted: 23 Jun 2020

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; University of Toulouse 1 - Université Toulouse 1 Capitole; Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Ye Wang

School of Banking and Finance, University of International Business and Economics

Date Written: May 29, 2020

Abstract

We show that hedge fund activism is associated with positive abnormal stock returns in both the short term and the long term. Using matching procedures to mitigate selection effects, we find that activists’ targets do not outperform ex ante similar control firms; this suggests that activists are good stock pickers, not value creators. Activists also exhibit strong timing skills, generally selling (buying) stocks in targeted firms during periods in which these stocks outperform (under-perform) and ahead of negative (positive) abnormal returns. These selection skills do not seem to benefit the buy-and-hold shareholders of the targeted firms.

Keywords: hedge funds, stock pickers, timing skills

JEL Classification: G00, G10, G11, G34

Suggested Citation

Cremers, K. J. Martijn and Giambona, Erasmo and Sepe, Simone M. and Wang, Ye, Hedge Fund Activists: Value Creators or Good Stock Pickers? (May 29, 2020). Available at SSRN: https://ssrn.com/abstract=3614029 or http://dx.doi.org/10.2139/ssrn.3614029

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Erasmo Giambona (Contact Author)

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 640
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Simone M. Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

University of Toulouse 1 - Université Toulouse 1 Capitole ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Toulouse School of Economics ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ye Wang

School of Banking and Finance, University of International Business and Economics ( email )

Beijing
China

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