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The role of derivatives in hedge fund activism

Author

Listed:
  • Jie (Michael) Guo
  • Jianhua Gang
  • Nan Hu
  • Vinay Utham

Abstract

Using a hand-collected sample of hedge fund activist engagements from 1994 to 2014, this study analysed the role of derivatives in the hedge fund activism. Evidence shows abnormal returns of targets of hedge fund activists who did not use derivatives exceeded the abnormal returns of targets of hedge fund activists who employed derivatives around the activist engagement disclosure period. We also find that idiosyncratic volatility of the targets of hedge fund activists who did not use derivatives was more reduced than that of the targets of hedge fund activists who used derivatives. Finally, the probability of takeovers increases for hedge fund activists who did not use derivatives.

Suggested Citation

  • Jie (Michael) Guo & Jianhua Gang & Nan Hu & Vinay Utham, 2018. "The role of derivatives in hedge fund activism," Quantitative Finance, Taylor & Francis Journals, vol. 18(9), pages 1531-1541, September.
    • Handle: RePEc:taf:quantf:v:18:y:2018:i:9:p:1531-1541
    DOI: 10.1080/14697688.2018.1444490
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