On the Other Side of Hedge Fund Equity Trades

Xinyu Cui; Olga Kolokolova; George  Wang

doi:10.1287/mnsc.2023.4877

On the Other Side of Hedge Fund Equity Trades

Xinyu Cui, Olga Kolokolova, George Wang

Research output: Contribution to journal › Article (Academic Journal) › peer-review

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Abstract

Hedge funds earn positive ex post abnormal returns and avoid negative abnormal returns on their equity portfolios when trading in the opposite direction of highly diversified low-turnover institutional investors (quasi indexers). This pattern seems to be driven by the preferences of quasi indexers for high-market-beta stocks together with the ability of hedge funds to identify subsets of especially profitable trades. It remains pronounced when accounting for other determinants of hedge fund trades, such as stock liquidity, market anomalies, and major corporate events. Trading against other institutional investors or noninstitutions does not result in abnormal performance for hedge funds.

Original language	English
Pages (from-to)	3684-3710
Number of pages	27
Journal	Management Science
Volume	70
Issue number	6
Early online date	31 Jul 2023
DOIs	https://doi.org/10.1287/mnsc.2023.4877
Publication status	Published - 1 Jun 2024
Event	AFA 2021 Annual Meeting - Duration: 3 Jan 2020 → 5 Jan 2021 https://afajof.org/past-meetings/

Bibliographical note

Publisher Copyright:
© 2023 INFORMS.

Research Groups and Themes

AF Financial Markets

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10.1287/mnsc.2023.4877

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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304606

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abstract = "Hedge funds earn positive ex post abnormal returns and avoid negative abnormal returns on their equity portfolios when trading in the opposite direction of highly diversified low-turnover institutional investors (quasi indexers). This pattern seems to be driven by the preferences of quasi indexers for high-market-beta stocks together with the ability of hedge funds to identify subsets of especially profitable trades. It remains pronounced when accounting for other determinants of hedge fund trades, such as stock liquidity, market anomalies, and major corporate events. Trading against other institutional investors or noninstitutions does not result in abnormal performance for hedge funds.",

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On the Other Side of Hedge Fund Equity Trades

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