The absolute return wedge: A new measure that predicts hedge fund performance


Ruenzi, Stefan ; Agarwal, Vikas ; Weigert, Florian


Document Type: Conference presentation
Year of publication: 2018
Conference title: 21st Annual Conference of the Swiss Society for Financial Market Research (SGF)
Location of the conference venue: Zürich, Switzerland
Date of the conference: 06.04.2018
Publication language: English
Institution: Business School > Internat. Finanzierung (Ruenzi)
Subject: 330 Economics
Abstract: We propose a new measure of hedge fund’s activeness. Our activeness measure is a fund firm’s absolute return wedge defined as the absolute value of a fund firm’s reported return minus its hypothetical portfolio return derived from its disclosed long equity holdings. Fund firms with a high absolute return wedge outperform fund firms with a low absolute return wedge by more than 6% p.a. after accounting for typical risk factors that explain hedge fund performance. We find that the absolute return wedge is positively associated with measures of managerial incentives and discretion. Moreover, fund firms with greater value of long put options and confidential equity positions disclosed with a delay in their regulatory filings show high absolute return wedges. Taken together, these results are consistent with better incentivized hedge fund managers being more active and delivering superior performance.




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Ruenzi, Stefan ORCID: 0000-0002-6492-1701 ; Agarwal, Vikas ; Weigert, Florian The absolute return wedge: A new measure that predicts hedge fund performance. (2018) 21st Annual Conference of the Swiss Society for Financial Market Research (SGF) (Zürich, Switzerland) [Conference presentation]


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BASE: Ruenzi, Stefan ; Agarwal, Vikas ; Weigert, Florian

Google Scholar: Ruenzi, Stefan ; Agarwal, Vikas ; Weigert, Florian

ORCID: Ruenzi, Stefan ORCID: 0000-0002-6492-1701 ; Agarwal, Vikas ; Weigert, Florian

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