Alpha or beta in the eye of the beholder: What drives hedge fund flows?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

Sensation Seeking and Hedge Funds

“…As drivers of capital to sensation‐seeking hedge funds, sensation‐seeking investors also shape the flow‐performance relationship of these funds. Consistent with the view that sensation‐seeking investors trade more actively by chasing fund performance (Agarwal, Green, and Ren ()), we find that sensation‐seeking hedge funds attract capital that is more sensitive to past performance than that attracted to sensation‐avoiding hedge funds. Moreover, in keeping with the view that sensation seeking constitutes an agency cost in investment management, we find that fund managers are less likely to engage in sensation seeking when their incentives are more aligned with those of their investors, for example, when they coinvest personal capital alongside their limited partners.…”

“…A simple and common way to trade funds actively is to chase past fund performance. Evidence of performance chasing is documented by Chevalier and Ellison (1997) and Siri and Tufano (1998) for mutual funds and by Agarwal, Green, and Ren (2018) for hedge funds. If sensation-seeking investors are indeed predisposed to chasing fund performance, it follows that, since sensation-seeking hedge funds tend to attract capital from sensation-seeking investors, sensation-seeking hedge funds should attract capital that is more sensitive to past performance.…”

The Reactive Beta Model

“…This echoes the findings of Bali, Brown, and Tang () for stocks that provide evidence of significant nonlinearity in uncertainty premium. Agarwal, Green, and Ren () measure risk‐adjusted hedge fund performance using a range of single‐ and multifactor models to find that, surprisingly, hedge fund flows are better explained by the CAPM alpha than by more sophisticated models. This echoes the findings of Berk and van Binsbergen (2016), who first use capital flows of mutual funds for asset pricing models to finally conclude that the CAPM better explains risk than no model at all.…”

Do Alpha Males Deliver Alpha? Testosterone and Hedge Funds

“…Moreover, as shown in Section 3.3, high-testosterone hedge fund managers tend to trade more actively. Do high-testosterone investors also trade more actively by engaging in positive feedback trading (Agarwal, Green, and Ren, 2018), thereby engendering greater flow-performance sensitivity for the high-testosterone hedge funds that they subscribe? In this section, we test this hypothesis by evaluating the flow-performance sensitivity of high-versus low-testosterone hedge funds.…”

“…We investigate fund flow response to CAPM alpha asAgarwal, Green, and Ren (2018) show that hedge fund flows are better explained by CAPM alphas than by alphas from more sophisticated models.…”