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Puzzle solved? A comprehensive analysis of hedge fund-like mutual funds according to the value-added paradigm

Author

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  • Nathaniel Light

    (St. John Fisher College)

  • Ivan Stetsyuk

    (Université du Québec á Montréal)

Abstract

Mutual funds that claim hedge fund strategies (HMFs) have experienced large increases in assets under management, yet academic studies are nearly unanimous in their negative appraisal of HMF performance. This paper examines whether this inconsistency can be resolved through the ‘value added’ paradigm. We demonstrate instead that pockets of value production and skill coexist alongside a largely wasteful HMF space as a whole. We document a highly fractured market structure in which the top 10 firms control 48% assets, the bottom half only 4%, and nearly 40% of firms disappear within a brief window. We explore the implications for tests of performance under such conditions.

Suggested Citation

  • Nathaniel Light & Ivan Stetsyuk, 2022. "Puzzle solved? A comprehensive analysis of hedge fund-like mutual funds according to the value-added paradigm," Journal of Asset Management, Palgrave Macmillan, vol. 23(3), pages 256-275, May.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:3:d:10.1057_s41260-022-00261-5
    DOI: 10.1057/s41260-022-00261-5
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    More about this item

    Keywords

    Hedged mutual funds; Manager skills; Value added; Bootstrap;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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