Using quarterly equity holdings of hedge funds, we find that both the level of and change in the stock holdings of hedge funds strongly predict future returns. For instance, an increase of one standard deviation in the change in hedge funds’ holdings results in a 1.8% increase in annual stock returns. In
contrast, we find the holdings of other institutional investors show little such forecasting ability. The return predictability of hedge fund holdings is most pronounced for stocks with high information asymmetry and for funds that are more likely to possess superior information. An arbitrage portfolio that
buys and sells stocks in the top and bottom quintiles of the changes in hedge funds’ holdings generates a statistically significant 6.4% excess return per year. We also find that the stocks that hedge funds buy earn higher abnormal returns around subsequent earnings announcements than those that they sell. Finally, consistent with the model of hedge funds developed by Glode and Green (2010) that rationalizes the superior performance of hedge funds over other investment vehicles, we find that the flow-performance sensitivity of hedge funds is significantly lower than that of non-hedge funds.
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[2011년 제 4차] Do Hedge Funds Have Information Advantages? Evidenc
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2011-12-07