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Capacity constraints, investor information, and hedge fund returns

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  • Ramadorai, Tarun

Abstract

To identify capacity constraints in hedge funds and simultaneously gauge how well-informed hedge fund investors are, we need measures of investor demand that do not affect deployed hedge fund assets. Using new data on investor interest from a secondary market for hedge funds, this paper verifies the existence of capacity constraints in hedge funds. There is more mixed evidence on the information available to hedge fund investors. Buy and sell indications arrive following fund outperformance. While buy indications have little incremental power to predict hedge fund performance over and above well-known forecasting variables, sell indications do somewhat better.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 107 (2013)
Issue (Month): 2 ()
Pages: 401-416

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Handle: RePEc:eee:jfinec:v:107:y:2013:i:2:p:401-416

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Hedge funds; Capacity constraints; Information; Flows;

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Cited by:
  1. Akay, Ozgur (Ozzy) & Senyuz, Zeynep & Yoldas, Emre, 2013. "Hedge fund contagion and risk-adjusted returns: A Markov-switching dynamic factor approach," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 16-29.
  2. Huang, Huichou & MacDonald, Ronald & Zhao, Yang, 2012. "Global Currency Misalignments, Crash Sensitivity, and Downside Insurance Costs," MPRA Paper 53745, University Library of Munich, Germany, revised 18 Nov 2013.

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