Investor protection, hedge fund leverage and valuation

Yuxiang Bian, Xiong Xiong and Jinqiang Yang

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: Weak investor protection inevitably causes concentrated insider equity ownership, economic decision distortion and resource misallocation (Shleifer and Vishny, 1993). Our paper focuses on theoretical hedge fund valuation and dynamic leverage choice by incorporating the consideration of weak investor protection. The weak investor protection effect on dynamic leverage choice is ambiguous, as it depends on the managers’ moneyness ratio, which will certainly have a negative effect on the hedge fund investors’ payoff. Thus, managers should take more ownership and engage in short volatility strategies in weak investor protection to secure their total payoff.Weak investor protection also significantly increases the hedge fund founding break-even alpha.

Keywords: Finance; Hedge fund; Investor protection; Leverage; Valuations (search for similar items in EconPapers)
JEL-codes: D82 G11 G2 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940822000626
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000626

DOI: 10.1016/j.najef.2022.101710

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().