I investigate whether hedge funds that supply liquidity earn superior returns. Using transaction data, I find that hedge funds following short-term contrarian strategies (i.e., liquidity-suppliers) earn significantly higher returns on their equity trades and holdings. Similarly, using commercial...

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...