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The Economics and Finance of Hedge Funds: A Review of the Academic Literature

Author

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  • Agarwal, Vikas
  • Mullally, Kevin A.
  • Naik, Narayan Y.

Abstract

Hedge funds have become increasingly important players in financial markets. This heightened importance has spawned a large academic literature focused on issues pertinent to hedge fund managers, investors, regulators, and policymakers. Although the top four finance journals (the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, and the Journal of Financial and Quantitative Analysis) published only 16 papers on hedge funds prior to 2005, they have published 105 papers on hedge funds since 2005. As a result, we felt that it is time to update the monograph published in 2005 [Agarwal and Naik, 2005]. This update, prepared with the help of new coauthor Kevin Mullally, extends the previous monograph along two dimensions. First, it includes reviews of recent studies on topics that were covered in the earlier monograph. Second, it summarizes research on new topics that were not part of the previous monograph. These new topics cover a broad gamut of issues ranging from hedge funds' use of leverage and exposure to different risks to their impact on various asset markets.

Suggested Citation

  • Agarwal, Vikas & Mullally, Kevin A. & Naik, Narayan Y., 2015. "The Economics and Finance of Hedge Funds: A Review of the Academic Literature," Foundations and Trends(R) in Finance, now publishers, vol. 10(1), pages 1-111, December.
  • Handle: RePEc:now:fntfin:0500000047
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    File URL: http://dx.doi.org/10.1561/0500000047
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    References listed on IDEAS

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    1. Shawky, Hany A. & Dai, Na & Cumming, Douglas, 2012. "Diversification in the hedge fund industry," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 166-178.
    2. Teo, Melvyn, 2011. "The liquidity risk of liquid hedge funds," Journal of Financial Economics, Elsevier, vol. 100(1), pages 24-44, April.
    3. Sheridan Titman & Cristian Tiu, 2011. "Do the Best Hedge Funds Hedge?," Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 123-168.
    4. Slavutskaya, Anna, 2013. "Short-term hedge fund performance," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4404-4431.
    5. René M. Stulz, 2007. "Hedge Funds: Past, Present, and Future," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 175-194, Spring.
    6. Zheng Sun & Ashley Wang & Lu Zheng, 2012. "The Road Less Traveled: Strategy Distinctiveness and Hedge Fund Performance," Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 96-143.
    7. Denitsa Stefanova & Arjen Siegmann & Marcin Zamojski, 2014. "Hedge Fund Innovation," LSF Research Working Paper Series 14-13, Luxembourg School of Finance, University of Luxembourg.
    8. Schaub, Nic & Schmid, Markus, 2013. "Hedge fund liquidity and performance: Evidence from the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 671-692.
    9. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    10. Clemens Sialm & Zheng Sun & Lu Zheng, 2013. "Home Bias and Local Contagion: Evidence from Funds of Hedge Funds," NBER Working Papers 19570, National Bureau of Economic Research, Inc.
    11. Vrontos, Spyridon D. & Vrontos, Ioannis D. & Giamouridis, Daniel, 2008. "Hedge fund pricing and model uncertainty," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 741-753, May.
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    Citations

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    Cited by:

    1. Vikas Agarwal & Stefan Ruenzi & Florian Weigert, 2018. "Unobserved Performance of Hedge Funds," Working Papers on Finance 1825, University of St. Gallen, School of Finance.
    2. Massimo Guidolin & Alexei G. Orlov, 2018. "Can Investors Benefit from Hedge Fund Strategies? Utility-Based, Out-of-Sample Evidence," BAFFI CAREFIN Working Papers 1887, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Platanakis, Emmanouil & Sakkas, Athanasios & Sutcliffe, Charles, 2019. "Harmful diversification: Evidence from alternative investments," The British Accounting Review, Elsevier, vol. 51(1), pages 1-23.

    More about this item

    Keywords

    Hedge funds; Fund performance;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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