The Geography of Hedge Funds

By Melvyn Teo. 2009

234 citations recorded by the source corpus.

This article analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asia-focused hedge funds. I find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72% per year. The local information advantage is pervasive across all major geographical regions, but is strongest for emerging market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. I show also that distant funds, especially those based in the United States and the United Kingdom, are able to raise more capital, charge higher fees, and set longer redemption periods, despite their underperformance relative to nearby funds. It appears that distant funds trade investment performance for better access to capital. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/3b82de308b2e8f35f6279b1abe2d2bdde4688f05

Citations in the corpus

Derivatives Use and Risk Taking: Evidence from the Hedge Fund Industry (2011, unknown): “Following Teo (2009), I back out pre-fee fund returns by taking the T-bill rate as the hurdle rate and applying a high-water mark when adding back incentive fees, then adjusting for management fees, and assuming that fund returns accrue to a 1st-year investor.19 The inferences in regard to fund…”
Is the crowd sensitive to distance?—how investment decisions differ by investor type (2017, unknown): “Research suggests that home bias persists for investments made by sophisticated financial intermediaries, such as mutual fund managers, hedge fund managers, and VCs, as well as by retail investors (see Coval and Moskowitz 1999; Grinblatt and Keloharju 2001; Feng and Seasholes 2004; Chan et al. 2005;”
On the High Frequency Dynamics of Hedge Fund Risk Exposures (2013, unknown): “This model has been used in numerous previous studies, see Bollen and Whaley (2009), Teo (2009), and Ramadorai (2011).”
Geographic Dispersion and Stock Returns (2012, unknown): “…and interpret their evidence as favoring the view that the trading pattern of local investors influences 3 Coval and Moskowitz (2001), Hau (2001), Ivković and Weisbenner (2005), Ivković, Sialm, and Weisbenner (2008), and Teo (2009) conclude that local investors have an informational advantage.”
Local Investors and Corporate Governance (2012, unknown): “3 For additional evidence of local preference in investment decisions, see Huberman (2001), Grinblatt and Keloharju (2001), Massa and Simonov (2006), Bodnaruk (2009), Teo (2009), and Seasholes and Zhu (2010).”
Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn (2011, unknown): “For the more moderate specification, we follow Teo (2009) and drop the first twelve months of available fund returns; the tenor of the results remains unchanged.”