Structural holes and hedge fund return comovement: evidence from network‐connected stock hedge funds in China

Abstract

Using data from a new hedge fund database, we examine the impact of social networks on the return comovement of stock hedge funds in China. We use structural holes in the college alumni networks of managers to measure the managers' social network positions. We perform an empirical analysis on a sample of 3,012 hedge fund products in China from 2010 to 2017. We find that greater structural holes are associated with higher return comovement. The positive impact of the structural holes on return comovement is not affected by market cycles, a manager's major in college, or his or her abilities.

The dark side of strengthened minority voting power: An innovation perspective

“…Brav et al (2008) document that following hedge fund activism, target firms experience higher executive pay-for-performance sensitivity and higher Chief Executive Officer (CEO) turnover. In China, hedge funds are particularly short-term investors because, compared with hedge funds in developed countries, the duration of hedge funds in China is very short (L. Li et al, 2020), and thus…”

“…(2008) document that following hedge fund activism, target firms experience higher executive pay‐for‐performance sensitivity and higher Chief Executive Officer (CEO) turnover. In China, hedge funds are particularly short‐term investors because, compared with hedge funds in developed countries, the duration of hedge funds in China is very short (L. Li et al., 2020), and thus Chinese hedge funds are prone to adopt myopic investment strategies. We expect that after the 2014 reforms, higher ownership by hedge funds negatively impacts firm innovation in China in a more significant way.…”