Are hedge fund returns affected by media coverage of macroeconomic news?

2019 ◽  
Vol 36 (3) ◽  
pp. 427-439
Author(s):  
Sandip Dutta ◽  
James Thorson
Keyword(s):  
Hedge Funds ◽  
Media Coverage ◽  
Hedge Fund ◽  
Real Sector ◽  
Macroeconomic News ◽  
Content Type ◽  
Fund Managers ◽  
News Announcements ◽  
Hedge Fund Returns ◽  
The Impact

Purpose Extant literature suggests that the difficulty associated with the interpretation of macroeconomic news announcements by the market in general in different economic environments, might be the reason why most studies do not find any significant relationship between real-sector macroeconomic variables and financial asset returns. This paper aims to use a different approach to measure macroeconomic news. The objective is to examine if a different measure of a macroeconomic news variable, constructed from media coverage of the same, significantly affects hedge fund returns. Design/methodology/approach The authors use a news index for unemployment, which is a real-sector variable, constructed from newspaper coverage of unemployment announcements and examine its impact on hedge fund returns. Findings Contrary to the other studies that examine the impact of macroeconomic news on hedge fund returns, the authors find that media coverage of unemployment news announcements significantly affects hedge fund returns. Practical implications Overall, this paper demonstrates that the manner in which the market interprets macroeconomic news announcements in different economic environments is probably a more relevant factor for hedge funds and is more likely to impact hedge fund returns. In conjunction with variables – constructed from media coverage of unemployment news announcements – that factor in the manner of interpretation, it is found that surprises also matter for hedge fund returns. This is an important consideration for hedge fund managers as well. Originality/value To the best of the authors’ knowledge, this is the first study that examines the impact of media coverage of macroeconomic news announcements on hedge fund returns and finds significantly different results with real-sector macro variables.

Portraits of five hedge fund fraud cases

2008 ◽  
Vol 15 (2) ◽  
pp. 179-213 ◽  
Author(s):  
Majed R. Muhtaseb ◽  
Chun Chun “Sylvia” Yang
Keyword(s):  
Asset Management ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Fund ◽  
Good Opportunity ◽  
Content Type ◽  
Fund Managers ◽  
Management Group ◽  
Fund Industry ◽  
Asset Managers

PurposeThe purpose of this paper is two fold: educate investors about hedge fund managers' activities prior to the fraud recognition by the authorities and to help investors and other stakeholders in the hedge fund industry identify red flags before fraud is actually committed.Design/methodology/approachThe paper investigates fraud committed by the Bayou Funds, Beacon Hill Asset Management, Lancer Management Group (LMG), Lipper & Company and Maricopa investment fund. The fraud activities took place during 2000 and 2005.FindingsThe five cases alone cost the hedge fund investors more than $1.5 billion. Investors may have had a good opportunity for avoiding the irrecoverable costs of the fraud had they carefully vetted the backgrounds of the hedge fund managers and/or continuously monitored the funds activities, especially during turbulent market environments.Originality/valueThis is the first research paper to identify and extensively investigate fraud committed by hedge funds. In spite of the size of the hedge fund industry and relatively substantial level and inevitably recurring fraud, academic journals are to yet address this issue. The paper is of great value to hedge funds and their individual and institutional investors, asset managers, financial advisers and regulators.

Fraud against hedge funds: implications to operational risk and due diligence

2020 ◽  
Vol 27 (1) ◽  
pp. 67-77
Author(s):  
Majed R. Muhtaseb
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Operational Risk ◽  
Future Research ◽  
Due Diligence ◽  
Law Firm ◽  
Short Term ◽  
Content Type ◽  
Fund Managers

Purpose The loss of an amount in excess of $100m cash deposit can be disruptive to the operations, definitely the liquidity of the hedge fund. Should a hedge fund liquidity position deteriorate, its compromised solvency could impact its vendors, most notably creditors and prime brokers. Large successful hedge funds do make basic mistakes. Lawyer Marc Dreier committed the criminal act of selling fraudulent promissory notes to hedge funds and others. Mr Drier’s success in selling fraudulent promissory notes was facilitated by his accomplices who posed as fake representatives of legitimate institutions. Drier and team presented bogus “audited financial statements” and forged developer’s signatures, and even went as far as using the unsuspecting institutions’ premises for meetings to meet potential notes buyers to further falsely legitimize the scheme. He had the notes buyers send their payments to his law firm account, to secure the money. His actions cost his victims, who include 13 hedge fund managers, other investors and entities, $400m in addition to his law firm’s employees who also suffered when his law firm was dissolved. For his actions, he was sentenced 20 years in federal prison for investment fraud. This study aims to direct hedge fund investors and other stakeholders to thoroughly vet the compliance function, especially controls on cash disbursements, even if the hedge fund is sizable (in excess of $1bn). Investors and even other stakeholders also should place a greater focus on what is usually overlooked issue; most notably the credit quality and authenticity of short-term investments bought by their hedge funds. Design/methodology/approach A thorough investigation of a fraud committed by a lawyer against a number of hedge funds. Several important lessons are identified to professionals who conduct due diligence on hedge funds. Findings The details of the case are very remarkable. This case directs investors’ attention to place greater efforts on certain aspects of operational risk and due diligence on not only hedge funds but also other investment managers. Normally investors conduct operational due diligence on the fund and its operations. Investors also vet fund external parties such as prime brokers, custodians, accountants and fund administrators. Yet, investors normally do not suspect the quality of short-term fund investments. In this case, the short-terms investments were the source of unforeseen yet substantial risk. Research limitations/implications Stakeholders in hedge funds need to carefully investigate the issuer of and the quality of short-term investments that a hedge fund invests in. Future research can investigate the association of hedge fund manager failure with a liquidity position of the fund. Practical implications Investors must thoroughly the entirety of the fund including short-term securities. Originality/value Normally, it is the hedge funds that commit the fraud against investors. In this case, it is the multi-billion hedge funds run by sophisticated fund managers, who are the victims.

Flagging potential fraudulent investment activity

2016 ◽  
Vol 23 (4) ◽  
pp. 882-901
Author(s):  
Jeremy King ◽  
Gary Wayne van Vuuren
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Sharpe Ratio ◽  
Financial Fraud ◽  
Investment Activity ◽  
Content Type ◽  
Limited Success ◽  
Bias Ratio ◽  
Return Distributions ◽  
Hedge Fund Returns

Purpose This paper aims to investigate the use of the bias ratio as a possible early indicator of financial fraud – specifically in the reporting of hedge fund returns. In the wake of the 2008-2009 financial crisis, numerous hedge funds were liquidated and several cases of financial fraud exposed. Design/methodology/approach Risk-adjusted return metrics such as the Sharpe ratio and Value at Risk were used to raise suspicion for fraud. These metrics, however, assume distributional normality and thus have had limited success with hedge fund returns (a characteristic of which is highly skewed, non-normal return distributions). Findings Results indicate that potential fraud would have been detected in the early stages of the scheme’s life. Having demonstrated the credibility of the bias ratio, it was then applied to several indices and (anonymous) South African hedge funds. The results were used to demonstrate the ratio’s scope and robustness and draw attention to other metrics which could be used in conjunction with it. Results from these multiple sources could be used to justify further investigation. Research limitations/implications The traditional metrics for performance evaluation (such as the Sharpe ratio), assume distributional normality and thus have had limited success with hedge fund returns (a characteristic of which is highly skewed, non-normal return distributions). The bias ratio, which does not rely on normally distributed returns, was applied to a known fraud case (Madoff’s Ponzi scheme). Practical implications The effectiveness of the bias ratio in demonstrating potential suspicious financial activity has been demonstrated. Originality/value The financial market has come under heightened scrutiny in the past decade (2005 – 2015) as a result of the fragile and uncertain economic milieu that still (2015) persists. Numerous risk and return measures have been used to evaluate hedge funds’ risk-adjusted performance, but many fail to account for non-normal return distributions exhibited by hedge funds. The bias ratio, however, has been demonstrated to effectively flag potentially fraudulent funds.

scholarly journals Traditional and Alternative Risk: Application to Hedge Fund Returns

2016 ◽  
Vol 7 (1) ◽  
pp. 5-33
Author(s):  
Claudio Boido ◽  
Antonio Fasano
Keyword(s):  
Stock Returns ◽  
Hedge Fund ◽  
Relative Advantage ◽  
Investment Policies ◽  
Fund Managers ◽  
Asset Class ◽  
Illiquid Investments ◽  
Hedge Fund Returns ◽  
Hedge Fund Performance ◽  
The Impact

This study compares the risk-adjusted performance of traditional and alternative investments. Instrumental to this design, we introduce a specific metric for assessing hedge fund performance, comprising both the relative advantage and the extra-risk of an alternative investment over a traditional one. We are concerned with the impact of the crisis. Common wisdom tells us that during phases of market euphoria, investors’ wishful thinking can make them overconfident of the high returns promised by the leveraged structures and the aggressive investment policies typical of this asset class; conversely, when the downturns hit, the “big bets”, taken by hedge fund managers, in risky and illiquid investments, can trigger severe losses in their investors’ portfolios. We found evidence that regime switches in stock returns emphasise the performance gap among the different fund investment policies; furthermore, some styles can effectively capitalise on managerial skill, outperforming traditional equity investment in terms of adjusted performance.

Investor behavior: hedge fund returns and strategies

2017 ◽  
Vol 9 (1) ◽  
pp. 14-42 ◽  
Author(s):  
Andres Bello ◽  
Jan Smolarski ◽  
Gökçe Soydemir ◽  
Linda Acevedo
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Management Style ◽  
Active Management ◽  
Warning Sign ◽  
Content Type ◽  
Market Sentiment ◽  
Irrational Behavior ◽  
Market Fundamentals ◽  
Hedge Fund Returns

Purpose The purpose of this paper is to investigate to what extent hedge funds are subject to irrationality in their investment decisions. The authors advance the hypothesis that irrational behavior affects hedge fund returns despite their sophistication and active management style. Design/methodology/approach The irrational component may follow a pattern consistent with the observed hedge fund returns yet far distant from market fundamentals. The authors include factors beyond the original version of capital asset pricing model such as Fama and French and Carhart models, as well as less stringent models, such as APT and Fung and Hsieh, to test whether these models are able to capture the irrational nature of the residuals. Findings After finding that institutional irrational sentiments play a role in hedge fund returns, we note that the returns are not completely shielded against irrational trading; however, hedge fund returns appear to be affected only by the irrational component derived from institutional trading rather than that emanated from individuals. Research limitations/implications Different sources of irrationality may have asymmetric effects on hedge fund returns. Using a different set of sophisticated investors along with different market sentiment proxies may yield different results. Practical implications The authors argue that investors can use irrational beta to gauge the extent of institutional irrational sentiments prevailing in markets for the purpose of re-adjusting their portfolios and therefore use the betas as an early warning sign. It can also guide investors in avoiding funds and strategies that display greater irrational behavior. Originality/value The study advance the idea that the unexpected, hereafter irrational, component may follow a pattern consistent with the observed hedge fund returns, yet different from market fundamentals.

Hedge fund stratagems and long-run SEO firm performance

2019 ◽  
Vol 45 (7) ◽  
pp. 886-903
Author(s):  
Robert M. Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Stock Returns ◽  
Hedge Funds ◽  
Stock Price ◽  
Hedge Fund ◽  
Content Type ◽  
Fund Managers ◽  
Long Run ◽  
Short Run ◽  
Price Movements ◽  
Variable Bias

Purpose The purpose of this paper is to explore if hedge fund variables (HFVs) are associated with long-run compounded raw returns (CRRs) for seasoned equity offering (SEO) firms for a six-year window around the offering month for firms undergoing SEOs. Design/methodology/approach The event study methodology is used to calculate long-run CRRs that are used in a regression model as dependent variables. Independent variables include HFVs and nonhedge fund variables (NFVs) with standard errors clustered at the month level. Findings Three new long-run findings, consistent with recent short-run findings, are offered. First, HFVs are significantly associated with long-run CRRs for SEO firms. Second, HFVs perform competitively compared to NFVs. Third, a potential omitted-variable bias results if HFVs are not used. Research limitations/implications This research assumes that hedge fund managers can identify good (poor) performing SEO firm that allow for profitable long (short) positions. The proportion of hedge funds using a strategy will change in the hypothesized manner needed to make profit. Practical implications Hedge fund managers can use long-run strategies to capitalize on price movements around significant corporate events. Social implications Larger institutional traders have investment advantages due to superior knowledge and greater ability to manipulate prices. Originality/value This research is the first study to detail the significant association between hedge fund stratagems and long-run stock returns for firms undergoing key corporate events. This study demonstrates the need to consider hedge fund strategies when trying to understand stock price movements.

Investing in Talents: Manager Characteristics and Hedge Fund Performances

2010 ◽  
Vol 46 (1) ◽  
pp. 59-82 ◽  
Author(s):  
Haitao Li ◽  
Xiaoyan Zhang ◽  
Rui Zhao
Keyword(s):  
Hedge Funds ◽  
Negative Impact ◽  
Hedge Fund ◽  
Fund Flows ◽  
Past Performance ◽  
Symmetric Relation ◽  
Fund Managers ◽  
Career Concern ◽  
Significant Negative Impact ◽  
The Impact

AbstractUsing a large sample of hedge fund manager characteristics, we provide one of the first comprehensive studies on the impact of manager characteristics, such as education and career concern, on hedge fund performances. We document differential ability among hedge fund managers in either generating risk-adjusted returns or running hedge funds as a business. In particular, we find that managers from higher-SAT (Scholastic Aptitude Test) undergraduate institutions tend to have higher raw and risk-adjusted returns, more inflows, and take fewer risks. Unlike mutual funds, we find a rather symmetric relation between hedge fund flows and past performance, and that hedge fund flows do not have a significant negative impact on future performance.

National Football League faces hedge fund manager fraud: implications for professional associations and investors from the case of international management associates

2015 ◽  
Vol 16 (3) ◽  
pp. 49-54
Author(s):  
Majed Muhtaseb
Keyword(s):  
Financial Reporting ◽  
Hedge Funds ◽  
National Football League ◽  
Hedge Fund ◽  
Professional Associations ◽  
Securities And Exchange Commission ◽  
Disciplinary Action ◽  
Content Type ◽  
Fund Managers ◽  
Investment Manager

Purpose – To describe the fraudulent activity of investment manager Kirk S. Wright and to discuss its implications for investors and professional associations. Design/methodology/approach – Describes how Mr Wright established and built his fund business, how he solicited investors, how he falsified financial reporting to investors, how investors discovered his fraud and filed lawsuits, how the US Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI) took disciplinary action, and how National Football League (NFL) players unsuccessfully sued the NFL and its players’ union for recommending Mr Wright’s firm. Draws lessons from the story for investors and associations. Findings – Since hedge funds are not as strictly regulated as other investment vehicles, investors need to take extra steps to not fall prey to unscrupulous fund managers. Originality/value – Detailed, informative case study.

The global refugee crisis and the career ecosystem

2019 ◽  
Vol 25 (1) ◽  
pp. 1-13
Author(s):  
Julia Richardson ◽  
Charlotte M. Karam ◽  
Fida Afiouni
Keyword(s):  
Media Coverage ◽  
Community Dynamics ◽  
Media Analysis ◽  
Host Community ◽  
Refugee Crisis ◽  
Content Type ◽  
Relevant Stakeholder ◽  
Media Reports ◽  
The Impact ◽  
Business Media

Purpose The purpose of this paper is to introduce this special issue about the “Impact of the Global Refugee Crisis on the Career Ecosystem” and summarise the key contributions of the included practitioner and scholarly papers which examine refugee business and labour market experiences. The paper also examines the impact of media reports to provide a broader understanding of the context within which the current refugee crisis is evolving. Design/methodology/approach The authors begin with a delineation of the concept of a career ecosystem in the context of refugee crises. The authors then employ this framing as a backdrop to engage in a basic analysis of business media coverage of the most recent Syrian refugee crisis, and a summary of the practitioner and scholarly papers. Findings The findings of the media analysis suggest major coverage differences between different groups of countries in the number of documents identified, the proposed aim of business engagement with refugees, and substance of the extracted statements generally. Research limitations/implications The analysis of business media coverage is rudimentary and intended only as a prompt for further conversations about how contemporary media commentary impacts on career opportunities for refugees and relevant stakeholder practices. Practical implications This paper demonstrates the importance of including broader considerations of refugee careers that explore the interaction and intersection with transnational and local ecosystem of labour markets while paying attention to the sociocultural and political refugee-host community dynamics. Originality/value This paper presents a more systems-oriented perspective and provides both practice and scholarly perspectives on the composite and dynamic nature of the refugee crisis on career ecosystems more broadly.

Determinants of Hedge Fund Internal Controls and Fees

2010 ◽  
Vol 85 (6) ◽  
pp. 1887-1919 ◽  
Author(s):  
Gavin Cassar ◽  
Joseph Gerakos
Keyword(s):  
Hedge Funds ◽  
Agency Costs ◽  
Hedge Fund ◽  
Short Selling ◽  
Internal Controls ◽  
Fund Managers ◽  
Asset Value ◽  
Net Asset Value ◽  
Financial Misstatements ◽  
Financial Misstatement

ABSTRACT: We investigate the determinants of hedge fund internal controls and their association with the fees that funds charge investors. Hedge funds are subject to minimal regulation. Hence, hedge fund managers voluntarily implement internal controls, and managers and investors freely contract on fees. We find that internal controls are stronger in funds with higher potential agency costs. Further, internal controls are stronger in funds domiciled in jurisdictions that provide investors with limited legal redress for fraud and financial misstatements. Short selling funds, however, are more likely to protect information about their investment positions by implementing weaker internal controls. With respect to fees, we find that the percentage of positive profits that the manager receives increases in the strength of the fund’s internal controls. Finally, removing the manager from setting and reporting the fund’s official net asset value, along with reputational incentives and monitoring by leverage providers, are all associated with lower likelihoods of future regulatory investigations of fraud and/or financial misstatement.

Sign in / Sign up

Export Citation Format

Share Document