The Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds

Review of Finance, Forthcoming

Posted: 18 Jun 2020

See all articles by Juha Joenväärä

Juha Joenväärä

Aalto University School of Business

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance

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Date Written: June 10, 2020

Abstract

This paper examines the effect of regulatory constraints on fund performance and risk by comparing conventional and UCITS hedge funds. Using a matching estimator approach, we estimate the indirect cost of UCITS regulation to be between 1.06% and 4.05% per annum in terms of risk-adjusted returns. These performance differences are likely to stem from UCITS constraints such as those governing eligible assets, diversification, and short selling, and cannot be explained by differences in redemption terms or level of leverage. We confirm that our performance results are not driven by management company characteristics, fund manager characteristics or unobserved confounder bias.

Keywords: hedge fund performance, mutual fund performance, managerial skill, regulation, constraints

JEL Classification: G11, G12, G23

Suggested Citation

Joenvaara, Juha and Kosowski, Robert, The Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds (June 10, 2020). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3623809

Juha Joenvaara (Contact Author)

Aalto University School of Business ( email )

Finland

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

London
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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