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Hedge Funds

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, Grand Ballroom B
Hosted By: American Finance Association
  • Chair: Chris Schwarz, University of California-Irvine

Do Alpha Males Deliver Alpha? Facial Structure and Hedge Funds

Melvyn Teo
,
Singapore Management University
Yan Lu
,
University of Central Florida

Abstract

Facial structure, as encapsulated by facial width-to-height ratio (fWHR), maps into a variety of masculine behaviors. We find that high-fWHR hedge fund managers significantly underperform low-fWHR hedge fund managers after adjusting for risk. Moreover, high-fWHR managers are more likely to terminate their funds, disclose violations on their Form ADVs, and exhibit greater operational risk. We trace the underperformance to high-fWHR managers' preference for lottery-like stocks and reluctance to sell loser stocks. The results are robust to adjustments for sample selection, marital status, sensation seeking, biological age, and manager race. Our results suggest that investors should eschew masculine managers.

Prime (Information) Brokerage

Nitish Kumar
,
University of Florida
Kevin Mullally
,
University of Alabama
Sugata Ray
,
University of Alabama
Yuehua Tang
,
University of Florida

Abstract

This paper documents that hedge funds gain an information advantage from their prime brokerage services-providing banks regarding the banks’ corporate borrowers. Hedge funds make informed trades in the stocks of firms that obtain loans from their prime-broker banks. The connected hedge funds make abnormally large trades prior to the loan announcement and these trades outperform other trades. The outperformance is particularly strong for (i) trades of hedge funds that have high revenue generation potential for prime brokers and (ii) trades in borrowing firms with high information asymmetry. Finally, we find that these informed trades are based on information regarding the borrowing firm in general, rather than just information about the loan.

Do Hedge Funds Profit from Public Information?

Alan Crane
,
Rice University
Kevin Crotty
,
Rice University
Tarik Umar
,
Rice University

Abstract

We examine whether hedge funds profit from public information. Unique data on hedge funds' use of publicly-available SEC filings show funds accessing filings subsequently exhibit 1.5% higher annualized abnormal returns than non-users. Above-median users earn even higher returns. Usage of filings is not merely a proxy for differences in fund ability. Fund returns are systematically related to the returns of stocks whose filings are viewed, suggesting funds act on acquired information. We conduct multiple analyses to explore why public information acquisition is profitable. Results are most consistent with funds using public information to complement private signals.
Discussant(s)
Chris Clifford
,
University of Kentucky
Zheng Sun
,
University of California-Irvine
Vikas Agarwal
,
Georgia State University
JEL Classifications
  • G1 - General Financial Markets