Do prime brokers intermediate capital?

Andrew J. Sinclair

Journal of Financial Intermediation, 2023, vol. 53, issue C

Abstract: Prime brokers play an important role in intermediating arbitrage capital to hedge funds. A fund’s peer-group ranking, relative to funds that share the same prime broker, significantly affects how investors respond to its past performance. I decompose the standard performance-flow relationship into two components: (1) flows that respond to overall performance rank, and (2) flows that respond to relative (within prime broker) performance rank. Strong relative rank drives fund in-flows, while poor overall rank drives out-flows. These results suggest that prime brokers intermediate about 40% of the standard performance-flow relationship.

Keywords: Prime brokers; Hedge funds; Fund flows; Intermediation; Arbitrage capital (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 G24 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:53:y:2023:i:c:s1042957322000572

DOI: 10.1016/j.jfi.2022.101004

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