This paper investigates whether the increase in assets flowing into the hedge fund industry diminishes returns and, in particular, whether larger hedge funds underperform smaller hedge funds, as is often conjectured, owing to limited capacity in certain hedge fund strategies. The impact of fund sizes is analysed with respect to fund returns, standard deviations, Sharpe ratios and alphas derived from a multi-asset class factor model.
Capacity issues based on large inflows in well-performing hedge funds are among the most frequently discussed concerns in the hedge fund industry. In this article the impact of asset flows and fund sizes on hedge fund and CTA performance is investigated. The findings confirm the legitimacy of investor concerns regarding capacity issues in the hedge fund industry. The results of the empirical study suggest a strong negative relationship between fund sizes and hedge fund returns, standard deviations, Sharpe ratios, and alphas derived from an asset class multi-factor model.
We show empirically that option-implied quantile skewness is priced differently depending on which portion of the risk-neutral distribution it is estimated from: Quantile skewness estimated from the tail (center) of the risk-neutral distribution is positively (negatively) related to future stock returns. Our results are consistent with investors who rely on information from traded options and disregard information from the extrapolated volatility surface. Furthermore, we find that quantile skewness is highly correlated with central skewness but more robust. Estimates of quantile skewness are accurate even if option prices span a small domain, have large gaps between strikes, and are noisy.
This paper investigates the effect of superstar CEOs on their competitors. Exploiting shocks to CEO status due to prestigious media awards, we document a significant positive stock market performance of competitors of superstar CEOs subsequent to the award. The effect is more pronounced for competitors who have not received an Award themselves, who are geographically close to an award winner and who are not entrenched. We observe an increase in risk-taking, operating performance and Innovation activity of superstars' competitors as potential channels for this positive performance. Our results suggest a positive overall welfare impact of corporate superstar systems due to the incentivizing effect on superstars' competitors.
This paper investigates the impact of investor information on financial innovation. We identify specific channels through which issuers of financially engineered products exploit retail investors by using their privileged access to information. Our results imply that imperfect investor information regarding volatility and dividends is crucial to explain the pricing and design of financially engineered products. We confirm our conjecture by exploiting a discontinuity in issuers' informational advantage. The insights are of systemic importance because they suggest that product issuers' behavior in the financial innovation market aggravates investor information problems of the financial system.
While there is a large literature documenting the profitability of momentum strategies, their implementation is afflicted with many difficulties. Most importantly, high turnover and costs to hold short positions, especially in small-cap stocks, result in high transaction costs. We restrict our investment universe to large-capitalized stocks included in the S&P 100 index. Moreover, we implement simple investment strategies that invest long in single stocks and short in the stock index. Such simple and cost-saving momentum strategies generate economically high and statistically significant abnormal returns. These results are robust to various risk-adjustments including the CAPM, the Fama French (1993) three-factor model, and a conditional version of the Fama and French (1993) three-factor model.
We investigate the performance of 95 board members of listed Swiss companies over 12 years. We identify quantitatively measurable characteristics of board members and test for a relationship between board member characteristics and firm performance. As a proxy for firm performance, we use the performance of the firm's stock relative to a benchmark index. The number of board memberships appears to be negatively related to performance, possibly caused by loss of focus or excessive workload. On the other hand, the age of a board member as well as combined Chairman/CEO positions tend to affect performance positively. No significant relationship is found for duration of board membership, nationality or gender.
