Working Paper: CEPR ID: DP8092
Authors: Tarun Ramadorai
Abstract: Employing a new dataset of over 9,000 expressed demands for over 700 hedge funds from a secondary market for hedge funds, this paper finds evidence suggesting that hedge fund investors rationally anticipate future hedge fund performance. Both buy and sell indications of interest arrive following periods of fund outperformance. Buy (sell) indications have some forecasting power for increases (decreases) in hedge fund performance, over and above other well-known forecasting variables. This information in investor demand co-exists with the presence of capacity constraints in hedge fund returns, confirming two main assumptions of Berk and Green (2004).
Keywords: capacity constraints; flows; hedge funds; information
JEL Codes: G11; G12; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| large buy indications (L81) | overoptimism about hedge fund performance (G41) |
| investor interest (G24) | hedge fund returns (G23) |
| sell indications (M31) | hedge fund returns (G23) |
| indications of interest to buy hedge funds (G23) | future abnormal returns (G17) |