Retail Hedge Funds

45 Pages Posted: 18 Feb 2021 Last revised: 1 Aug 2022

See all articles by Andrew Sinclair

Andrew Sinclair

California Institute of Technology

Chuyi Zhang

The University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2022

Abstract

We use a novel fund-level measure to identify 877 retail hedge funds. On average, retail funds do not underperform, either on an absolute basis or relative to institutional funds. In the cross-section, 14.3% of retail funds produce positive alpha and performance is predictable: funds with low systematic risk outperform, and poor performing funds persistently underperform. Turning to investor behavior, retail investors are "hot money" and are more likely to divest following poor performance. They do not exhibit selection ability but are not "dumb money," and they also chase alpha and ignore (or avoid) common factor returns.

Keywords: Retail investors, hot money, hedge funds, investor sophistication

JEL Classification: G23, G51, K22, D63

Suggested Citation

Sinclair, Andrew and Zhang, Chuyi, Retail Hedge Funds (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=3779042 or http://dx.doi.org/10.2139/ssrn.3779042

Andrew Sinclair (Contact Author)

California Institute of Technology ( email )

United States

Chuyi Zhang

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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