IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v101y2011i1p1-17.html
   My bibliography  Save this article

Information spillovers and performance persistence for hedge funds

Author

Listed:
  • Glode, Vincent
  • Green, Richard C.

Abstract

We present a simple model that rationalizes performance persistence in hedge fund limited partnerships. In contrast to the model for mutual funds of Berk and Green (2004), the learning in our model pertains to profitability associated with an innovative trading strategy or emerging sector, rather than ability specific to the fund manager. As a result of potential information spillovers, which would increase competition if informed investors were to partner with non-incumbent managers, incumbent managers will let informed investors benefit from increases in estimated profitability following high returns realized with the trading strategy or in the sector.

Suggested Citation

  • Glode, Vincent & Green, Richard C., 2011. "Information spillovers and performance persistence for hedge funds," Journal of Financial Economics, Elsevier, vol. 101(1), pages 1-17, July.
    • Handle: RePEc:eee:jfinec:v:101:y:2011:i:1:p:1-17
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X11000481
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anton, James J & Yao, Dennis A, 1994. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 84(1), pages 190-209, March.
    2. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    3. von Thadden, Ernst-Ludwig, 2004. "Asymmetric information, bank lending and implicit contracts: the winner's curse," Finance Research Letters, Elsevier, vol. 1(1), pages 11-23, March.
    4. William Fung & David A. Hsieh & Narayan Y. Naik & Tarun Ramadorai, 2008. "Hedge Funds: Performance, Risk, and Capital Formation," Journal of Finance, American Finance Association, vol. 63(4), pages 1777-1803, August.
    5. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September.
    6. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    7. Steven N. Kaplan & Per Strömberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 281-315.
    8. Rajan, Raghuram G, 1992. "Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    9. Vikas Agarwal & Wei Jiang & Yuehua Tang & Baozhong Yang, 2013. "Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide," Journal of Finance, American Finance Association, vol. 68(2), pages 739-783, April.
    10. Ravi Jagannathan & Alexey Malakhov & Dmitry Novikov, 2010. "Do Hot Hands Exist among Hedge Fund Managers? An Empirical Evaluation," Journal of Finance, American Finance Association, vol. 65(1), pages 217-255, February.
    11. Agarwal, Vikas & Daniel, Naveen D. & Naik, Narayan Y., 2009. "Role of managerial incentives and discretion in hedge fund performance," CFR Working Papers 04-04, University of Cologne, Centre for Financial Research (CFR).
    12. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    13. Darrell Duffie & Nicolae Gârleanu & Lasse Heje Pedersen, 2007. "Valuation in Over-the-Counter Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1865-1900, November.
    14. Vikas Agarwal & Naveen D. Daniel & Narayan Y. Naik, 2009. "Role of Managerial Incentives and Discretion in Hedge Fund Performance," Journal of Finance, American Finance Association, vol. 64(5), pages 2221-2256, October.
    15. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    16. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    17. Claude d'Aspremont & Sudipto Bhattacharya & Louis-Andre Gerard-Varet, 2000. "Bargaining and Sharing Innovative Knowledge," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(2), pages 255-271.
    18. Kosowski, Robert & Naik, Narayan Y. & Teo, Melvyn, 2007. "Do hedge funds deliver alpha? A Bayesian and bootstrap analysis," Journal of Financial Economics, Elsevier, vol. 84(1), pages 229-264, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Charles Cao & Grant Farnsworth & Hong Zhang, 2021. "The Economics of Hedge Fund Startups: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 76(3), pages 1427-1469, June.
    2. Kuzmina, Olga & Kelly, Patrick & Gorovyy, Sergiy, 2020. "Does Secrecy Signal Skill? Characteristics and Performance of Secretive Hedge Funds," CEPR Discussion Papers 14873, C.E.P.R. Discussion Papers.
    3. Lopez-de-Silanes, Florencio & Phalippou, Ludovic & Gottschalg, Olivier, 2010. "Giants at the Gate: On the Cross-section of Private Equity Investment Returns," MPRA Paper 28487, University Library of Munich, Germany.
    4. Vikas Agarwal & Stefan Ruenzi & Florian Weigert, 2018. "Unobserved Performance of Hedge Funds," Working Papers on Finance 1825, University of St. Gallen, School of Finance.
    5. Vigile Marie Fabella & Georgi Kocharkov, 2016. "From planning to chaos to market: Ethnic inequality in Bulgaria," Working Paper Series of the Department of Economics, University of Konstanz 2016-08, Department of Economics, University of Konstanz.
    6. Julien Cusin & Juliette Ducros-Passebois, 2015. "Appropriate persistence in a project: The case of the Wine Culture and Tourism Centre in Bordeaux," Post-Print hal-03240447, HAL.
    7. Michael S. O’Doherty & N. E. Savin & Ashish Tiwari, 2016. "Evaluating Hedge Funds with Pooled Benchmarks," Management Science, INFORMS, vol. 62(1), pages 69-89, January.
    8. Ľuboš Pástor & Robert F. Stambaugh, 2012. "On the Size of the Active Management Industry," Journal of Political Economy, University of Chicago Press, vol. 120(4), pages 740-781.
    9. Morten Sorensen & Neng Wang & Jinqiang Yang, 2014. "Valuing Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 27(7), pages 1977-2021.
    10. George J. Jiang & Bing Liang & Huacheng Zhang, 2022. "Hedge Fund Manager Skill and Style-Shifting," Management Science, INFORMS, vol. 68(3), pages 2284-2307, March.
    11. Ling, Yun & Satchell, Stephen & Yao, Juan, 2023. "Decreasing returns to scale and skill in hedge funds," Journal of Banking & Finance, Elsevier, vol. 156(C).
    12. Nicolas P. B. Bollen & Mark C. Hutchinson & John O'Brien, 2021. "When it pays to follow the crowd: Strategy conformity and CTA performance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(6), pages 875-894, June.
    13. Gupta-Mukherjee, Swasti, 2013. "When active fund managers deviate from their peers: Implications for fund performance," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1286-1305.
    14. Korteweg, Arthur & Sorensen, Morten, 2017. "Skill and luck in private equity performance," Journal of Financial Economics, Elsevier, vol. 124(3), pages 535-562.
    15. Gorovyy, Sergiy & Kelly, Patrick J. & Kuzmina, Olga, 2021. "Does secrecy signal skill? Own-investor secrecy and hedge fund performance," Journal of Banking & Finance, Elsevier, vol. 133(C).
    16. Marquez, Robert & Nanda, Vikram & Yavuz, M. Deniz, 2010. "Private Equity Fund Returns: Do Managers Actually Leave Money on the Table?," Working Papers 10-24, University of Pennsylvania, Wharton School, Weiss Center.
    17. Andrew W. Lo & Mila Getmansky & Peter A. Lee, 2015. "Hedge Funds: A Dynamic Industry in Transition," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 483-577, December.
    18. Prelipcean, Gabriela & Boscoianu, Mircea, 2020. "An Innovative Flexible Investment Vehicle Oriented to Sustainability – The Adaptation of Hedge Funds in the Case of Emerging Markets," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2020), Virtual Conference, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Virtual Conference, 10-12 September 2020, pages 493-503, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    19. Byoung Uk Kang & Jin-Mo Kim & Oded Palmon & Zhaodong Zhong, 2020. "Are college education and job experience complements or substitutes? Evidence from hedge fund portfolio performance," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1247-1278, May.
    20. Cusin, Julien & Passebois-Ducros, Juliette, 2015. "Appropriate persistence in a project: The case of the Wine Culture and Tourism Centre in Bordeaux," European Management Journal, Elsevier, vol. 33(5), pages 341-353.
    21. Hoang, Lai T. & Wee, Marvin & Yang, Joey Wenling, 2023. "Strategic trading by insiders in the presence of institutional investors," Journal of Financial Markets, Elsevier, vol. 64(C).
    22. Spilker, Harold D., 2022. "Hedge fund family ties," Journal of Banking & Finance, Elsevier, vol. 134(C).
    23. Zheng Sun & Ashley W. Wang & Lu Zheng, 2016. "Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions," Finance and Economics Discussion Series 2016-030, Board of Governors of the Federal Reserve System (U.S.).
    24. Jackwerth, Jens Carsten & Slavutskaya, Anna, 2016. "The total benefit of alternative assets to pension fund portfolios," Journal of Financial Markets, Elsevier, vol. 31(C), pages 25-42.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benoît Dewaele, 2013. "Portfolio Optimization for Hedge Funds through Time-Varying Coefficients," Working Papers CEB 13-032, ULB -- Universite Libre de Bruxelles.
    2. Andrew W. Lo & Mila Getmansky & Peter A. Lee, 2015. "Hedge Funds: A Dynamic Industry in Transition," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 483-577, December.
    3. Benoît Dewaele, 2013. "Leverage and Alpha: The Case of Funds of Hedge Funds," Working Papers CEB 13-033, ULB -- Universite Libre de Bruxelles.
    4. Zheng Sun & Ashley W. Wang & Lu Zheng, 2016. "Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions," Finance and Economics Discussion Series 2016-030, Board of Governors of the Federal Reserve System (U.S.).
    5. Wilkens, Marco & Yao, Juan & Jeyasreedharan, Nagaratnam & Oehler, Patrick, 2013. "Measuring the performance of hedge funds using two-stage peer group benchmarks," Working Papers 2013-18, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Jun 2013.
    6. Joenväärä, Juha & Kauppila, Mikko & Kahra, Hannu, 2021. "Hedge fund portfolio selection with fund characteristics," Journal of Banking & Finance, Elsevier, vol. 132(C).
    7. Mark Grinblatt & Gergana Jostova & Lubomir Petrasek & Alexander Philipov, 2020. "Style and Skill: Hedge Funds, Mutual Funds, and Momentum," Management Science, INFORMS, vol. 66(12), pages 5505-5531, December.
    8. Agarwal, Vikas & Green, Tracy Clifton & Ren, Honglin, 2017. "Alpha or beta in the eye of the beholder: What drives hedge fund flows?," CFR Working Papers 15-08, University of Cologne, Centre for Financial Research (CFR), revised 2017.
    9. Chen, Honghui & Kumar, Alok & Lu, Yan & Singh, Ajai, 2022. "Do Hedge Fund Managers Understand Politics? Political Sensitivity and Investment Skill," Journal of Banking & Finance, Elsevier, vol. 135(C).
    10. Aggarwal, Rajesh K. & Jorion, Philippe, 2010. "The performance of emerging hedge funds and managers," Journal of Financial Economics, Elsevier, vol. 96(2), pages 238-256, May.
    11. Shi, Zhen, 2017. "The impact of portfolio disclosure on hedge fund performance," Journal of Financial Economics, Elsevier, vol. 126(1), pages 36-53.
    12. Kooli, Maher & Zhang, Min, 2022. "Not only skill but also scale: Evidence from the hedge funds industry," International Review of Financial Analysis, Elsevier, vol. 83(C).
    13. Canepa, Alessandra & de la O. González, María & Skinner, Frank S., 2020. "Hedge fund strategies: A non-parametric analysis," International Review of Financial Analysis, Elsevier, vol. 67(C).
    14. Malakhov, Alexey & Riley, Timothy B. & Yan, Qing, 2024. "Do hedge funds bet against beta?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1507-1525.
    15. Vikas Agarwal & Stefan Ruenzi & Florian Weigert, 2018. "Unobserved Performance of Hedge Funds," Working Papers on Finance 1825, University of St. Gallen, School of Finance.
    16. Ling, Yun & Satchell, Stephen & Yao, Juan, 2023. "Decreasing returns to scale and skill in hedge funds," Journal of Banking & Finance, Elsevier, vol. 156(C).
    17. Nicolae Gârleanu & Lasse Heje Pedersen, 2018. "Efficiently Inefficient Markets for Assets and Asset Management," Journal of Finance, American Finance Association, vol. 73(4), pages 1663-1712, August.
    18. Agarwal, Vikas & Fos, Vyacheslav & Jiang, Wei, 2010. "Inferring reporting biases in hedge fund databases from hedge fund equity holdings," CFR Working Papers 10-08, University of Cologne, Centre for Financial Research (CFR).
    19. Charles Cao & Grant Farnsworth & Hong Zhang, 2021. "The Economics of Hedge Fund Startups: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 76(3), pages 1427-1469, June.
    20. Lu, Yan & Ray, Sugata & Teo, Melvyn, 2016. "Limited attention, marital events and hedge funds," Journal of Financial Economics, Elsevier, vol. 122(3), pages 607-624.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:101:y:2011:i:1:p:1-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.