We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to...

We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to...

The shape of the flow-performance relationship in the hedge fund industry is not constant over time, but varies across market conditions. We employ a switching regression approach to explain quarterly hedge fund flows, based on two regimes where either inflows or outflows are dominating,...

Believers in the law of small numbers tend to overinfer the outcome of a random process after a small series of observations. They believe that small samples replicate the probability distribution properties of the population. We provide empirical evidence indicating that investors are...

We explore the flow-performance interrelation of hedge funds by separating the investment and divestment decisions of investors using a regime switching model. We report three previously undocumented features in hedge fund data. First, we find a weak inflow-performance relation at quarterly...