When fund management skill is more valuable?

Dong, Feng; Doukas, John A.

doi:10.1111/eufm.12234

Cited by 5 publications

(3 citation statements)

References 99 publications

(247 reference statements)

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“…Second, different regulatory framework as we compared in Appendix A, shorter locked period, limited leverage ratio and derivatives hamper the Chinese hedge funds to implement long-term investment strategies that long undervalued stocks. Third, fund managers have the skills to time the market and to identify mispriced stocks to make money (Dong and Doukas 2020). Our results directly challenge the view that sophisticated investors consistently move against mispricing, and it enriches the research on the role of sophisticated investors in asset pricing and shed new lights on the information content and potential investment value of hedge funds holdings in emerging markets.…”

Section: Discussionsupporting

confidence: 56%

The role of hedge funds in the asset pricing: evidence from China

Zhang

et al. 2021

The European Journal of Finance

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We document that hedge funds nurture mispricing in the Chinese financial market. We exploit the relationship between hedge fund holdings and the degree of mispricing in case that hedge fund holdings of stocks are mainly for arbitrage purpose but not for hedging, and that with and without short-selling restrictions. Hedge funds intentionally hold overvalued stocks.Their trades, which generate an abnormal return to 1.78% per month, also impede the dissipation of stock mispricing. Further, we find trend chasing may be the reason why hedge funds prefer to hold overvalued stocks. This research sheds new lights on the information content and potential investment value of hedge funds holdings in emerging markets.

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Section: Discussionsupporting

confidence: 56%

The role of hedge funds in the asset pricing: evidence from China

Zhang

et al. 2021

The European Journal of Finance

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“…While an indirect sentiment proxy, being based on market‐related factors the BW index is proximate to the financial markets (Duxbury et al, 2020), reflecting the impact of sentiment on trading behaviour in financial markets. It is the seminal sentiment proxy of its kind and has been widely used in prior studies of retail investor sentiment such as Derrien and Kecskés (2009), Yu and Yuan (2011), Shefrin (2015), Antoniou et al (2016), and Dong and Doukas (2020). In the second, we replace AAII and II with the BW index and sentix, respectively.…”

Section: Risk–return Tradeoff At the Market Level: Mean–variance Rela...mentioning

confidence: 99%

Investor sentiment and the risk–return relation: A two‐in‐one approach

Duxbury

Wang

2023

Euro Fin Management

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Traditional finance theory posits a positive risk–return relation, but empirical evidence is inconclusive. Retail investor sentiment has long been viewed as a distorting factor, while more recently institutional investor sentiment is thought to play a role. We examine the separate and joint impacts of retail and institutional investor sentiments on the risk‐return relation. We find, at both market and firm levels, the risk‐return relation is more likely to be distorted by the two investor‐type sentiments jointly, rather than separately. We further find a cross‐sectional pattern, with the risk‐return relation being more sensitive to investor sentiment for stocks with specific characteristics.

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“…Recent evidence byDong and Doukas (2020) suggests that highly skilled portfolio managers are able to identify mispriced stocks, especially in high-sentiment periods(Dong & Doukas, 2018).…”

mentioning

confidence: 99%

Investment transparency and the disposition effect

Danbolt

Eshraghi

Lukas

2021

Euro Fin Management

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The disposition effect is lower in a trading environment with salient information on current holdings. Using proprietary data from a European fintech platform for social trading, we analyze variation in trading behavior within and between private and publicly visible portfolios. The disposition effect diminishes by about 35% when trades and holdings become public. We find the level of transparency and the way financial information is illustrated can influence trading decisions. Our results suggests that requiring greater transparency from portfolio managers can reduce trading bias.

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When fund management skill is more valuable?

Cited by 5 publications

References 99 publications

The role of hedge funds in the asset pricing: evidence from China

The role of hedge funds in the asset pricing: evidence from China

Investor sentiment and the risk–return relation: A two‐in‐one approach

Investment transparency and the disposition effect

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