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Diverse hedge funds

Journal

Review of Financial Studies

Subject

Finance

Publishing details

Review of Financial Studies 2023 Vol 37:2 p 639-683

Authors / Editors

Lu Y;Naik N Y;Teo M

Biographies

Narayan Naik

Publication Year

2023

Abstract

Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse teams deliver superior returns by arbitraging more stock anomalies, avoiding behavioral biases, and minimizing downside risks. Moreover, diversity allows hedge funds to circumvent capacity constraints and generate persistent performance. Our results suggest that diversity adds value in asset management.

Keywords

Non-bank financial institutions; Financial instruments; Institutional investors; Economics of minorities; Races; Indigenous peoples and immigrants; Non-labor discrimination; Economics of gender; Human capital; Skills; Occupational choice

Available on ECCH

No


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