Diverse Hedge Funds

Lu, Yan, Naik, N and Teo, Melvyn (2023) Diverse Hedge Funds. Review of Financial Studies, 37 (2). pp. 639-683. ISSN 0893-9454 OPEN ACCESS

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.

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Item Type: Article
Subject Areas: Finance
Date Deposited: 26 Sep 2023 09:03
Date of first compliant deposit: 25 Sep 2023
Subjects: Indigenous groups
Financial institutions
Corporate culture
Last Modified: 30 Jan 2024 16:44
URI: https://lbsresearch.london.edu/id/eprint/3044
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