{"title":"Fundamental Arbitrage under the Microscope: Evidence from Detailed Hedge Fund Transaction Data","authors":"von Beschwitz B, Lunghi S, Schmidt D, et al.","doi":"10.1093/rapstu/raab013","DOIUrl":null,"url":null,"abstract":"<span><div>Abstract</div>We exploit detailed transaction and position data for a sample of long-short equity hedge funds to study the trading activity of fundamental investors. We find that hedge funds exhibit skill in opening positions, but that they close their positions too early, thereby forgoing about one-third of the trades’ potential profitability. We explain this behavior with the limits of arbitrage: hedge funds close positions early in order to reallocate their capital to more profitable investments and/or to accommodate tightened financial constraints. Consistent with this view, we document that hedge funds leave more money on the table after opening new positions, negative returns, or increases in funding constraints and volatility. (<span style=\"font-style:italic;\">JEL</span> G11, G12, G14, G15)</span>","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":2.2000,"publicationDate":"2021-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Asset Pricing Studies","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1093/rapstu/raab013","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We exploit detailed transaction and position data for a sample of long-short equity hedge funds to study the trading activity of fundamental investors. We find that hedge funds exhibit skill in opening positions, but that they close their positions too early, thereby forgoing about one-third of the trades’ potential profitability. We explain this behavior with the limits of arbitrage: hedge funds close positions early in order to reallocate their capital to more profitable investments and/or to accommodate tightened financial constraints. Consistent with this view, we document that hedge funds leave more money on the table after opening new positions, negative returns, or increases in funding constraints and volatility. (JEL G11, G12, G14, G15)
期刊介绍：
The Review of Asset Pricing Studies (RAPS) is a journal that aims to publish high-quality research in asset pricing. It evaluates papers based on their original contribution to the understanding of asset pricing. The topics covered in RAPS include theoretical and empirical models of asset prices and returns, empirical methodology, macro-finance, financial institutions and asset prices, information and liquidity in asset markets, behavioral investment studies, asset market structure and microstructure, risk analysis, hedge funds, mutual funds, alternative investments, and other related topics.
Manuscripts submitted to RAPS must be exclusive to the journal and should not have been previously published. Starting in 2020, RAPS will publish three issues per year, owing to an increasing number of high-quality submissions. The journal is indexed in EconLit, Emerging Sources Citation IndexTM, RePEc (Research Papers in Economics), and Scopus.
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