Diverse hedge funds

• Main Authors: LU, Yan, NAIK, Narayan Y., TEO, Melvyn
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Capacity constraints; gender diversity; performance; risk patterns; returns; persistence; managers; heteroskedasticity; friendship; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7267; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8266/viewcontent/hhad064_pvoa_cc_by.pdf
• Institution: Singapore Management University

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. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online