Hedge Fund Innovation

Denitsa Stefanova, Arjen Siegmann and Marcin Zamojski

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: We study first-mover advantages in the hedge fund industry by clustering hedge funds based on the type of assets and instruments they trade in, sector and investment focus, and fund details. We find that early entry in a cluster is associated with higher excess returns, longer survival, higher incentive fees and lower management fees compared to funds that arrive later. Moreover, the latest entrants have a high loading on the returns of the innovators, but with lower incentive fees, and higher management fees. Cross-sectional regressions show that the outperformance of innovating funds are declining with age. The results are robust to different parameters of clustering and backfill-bias, and are not driven by the possible existence of flagship and follow-on funds. Our results show that the reported characteristics of hedge funds can be used to infer strategy-related information and suggest that specific first-mover advantages exist in the hedge fund industry.

Keywords: hedge funds; first-mover advantage; innovation; clustering (search for similar items in EconPapers)
JEL-codes: G15 G23 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:14-13

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