Hedged Mutual Funds and Competition for Sources of Alpha

44 Pages Posted: 11 May 2021 Last revised: 16 Aug 2021

See all articles by Asli Eksi

Asli Eksi

Salisbury University - Perdue School of Business

Hossein B. Kazemi

University of Massachusetts at Amherst - Isenberg School of Management

Date Written: May 11, 2021

Abstract

Hedged mutual funds proliferated following the 2007-2009 financial crisis. They became particularly popular with financial advisors because of their alleged downside protection. Did these funds deliver what they promised? We examine the performance of these funds with a focus on the post-2009 period. While they generated positive alphas before the crisis, we find that this abnormal performance vanishes in the post-2009 period as their strategies become increasingly crowded due to the above popularity. We show that flows to hedged mutual funds are negatively related to investor sentiment, implying that investors use these funds as a hedge against downside risk.

Keywords: Hedged Mutual Funds, Hedge Funds, Arbitrage Opportunities, Competition

JEL Classification: G11, G12, G23

Suggested Citation

Eksi, Asli and Kazemi, Hossein B., Hedged Mutual Funds and Competition for Sources of Alpha (May 11, 2021). Available at SSRN: https://ssrn.com/abstract=3843446 or http://dx.doi.org/10.2139/ssrn.3843446

Asli Eksi (Contact Author)

Salisbury University - Perdue School of Business ( email )

1101 Camden Avenue
Salisbury, MD 21801
United States

Hossein B. Kazemi

University of Massachusetts at Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States

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