This study examines whether the standard compensation contract in the hedge fund industry aligns managers' incentives with investors' interests. I show empirically that managers' compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus,...

Using a sample of hedge funds and mutual funds, I examine two channels through which asset managers can contribute to systemic risk: the service channel when funds act as liquidity suppliers and the asset liquidation channel when funds act as liquidity demanders. Consistent with the latter...

In this paper we propose an integrated approach to assessing risk for alternative investment funds, both at micro and macro (market) level. Building upon the experience and practice in European Supervisory Agencies and different National Competent Authorities on assessing risk for other type of...

This joint ECB-DNB Occasional Paper aims to inform the ongoing discussions about an EU-level framework for operationalising macroprudential leverage limits for alternative investment funds (AIFs). It builds on, and extends, the analysis of an ECB-DNB special feature article published in the...

This study provides early evidence on the performance of passively-managed hedged exchange-traded funds (HETFs) introduced rather recently in late 2006. The data covers surviving HETFs in 2017 under global macro and long-short classifications. Using Fung and Hsieh's (2004) 7-factor model and...

We study the interaction between ETF rebalancing and hedge fund “front-running” trades and its implications for the capital market. First, we document that ETF rebalancing has a strong negative relation with future stock returns. Second, we observe that hedge funds gradually increase...

This paper examines the causes and consequences of hedge fund investments in exchange traded funds (ETFs) using U.S. data from 1998 to 2018. The data indicate that transient hedge funds and quasi-indexer hedge funds are substantially more likely to invest in ETFs. Unexpected hedge fund inflows...

Utilizing a novel style identification procedure, we show that style-shifting is a dynamic strategy commonly employed by hedge fund managers. Three quarters of hedge funds shifted their investment styles at least once over the period from January 1994 to December 2013. We perform empirical tests...

Recently there has been a rapid growth in the assets managed by "hedged mutual funds" - mutual funds mimicking hedge funds strategies. In this paper, we examine the performance of these funds relative to hedge funds and traditional mutual funds. We find that despite their use of similar trading...

This study presents a hedge fund portfolio choice model for an investor facing ambiguity. In the empirical section, we measure ambiguity as the cross-sectional dispersion in Industrial Production growth and in stock market return forecasts, and we construct the systematic ambiguity factors from...