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Document Type

Open Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Degree Program

Management

Year Degree Awarded

2016

Month Degree Awarded

May

First Advisor

Hossein B. Kazemi

Second Advisor

Bing Liang

Third Advisor

Mila Getmansky Sherman

Fourth Advisor

Emily Yucai Wang

Subject Categories

Finance and Financial Management

Abstract

The first chapter analyzes hedge fund activeness and its impact on hedge fund perfor- mance. We propose an innovative method to estimate time-varying risk exposures of hedge funds. The activeness is measured as the time-series average of sum of changes in risk exposures. We examine cross-section and time-series variation of activeness among hedge funds. The activeness can be explained by fund characteristics such as age, lockup period, performance fee, and past performance. Using four performance measures, we find little evidence of active funds outperforming others over the sample period 1994 through 2013. We find that activeness tend to yield better performance only in the pre-2002 period and such effect exists mainly for fund strategies that make directional bets.

Chapter two studies how hedge funds’ activities in exploiting stock anomalies im- pact fund performance. Using a sample of 3024 equity-oriented hedge funds and 10 stock anomalies, we find that hedge funds overall trade on the correct side of the anomalies. The decile 10 portfolio of hedge funds that trade on stock anomalies most intensively out- perform the decile 1 portfolio of hedge funds by 2.16% of Fama-French (1993) alpha per annum and by 0.17 in appraisal ratio per annum. We find that crowdedness of hedge funds exploiting stock anomalies and competition among hedge funds weakens the effectiveness of exploiting stock anomalies in generating risk-adjusted performance.

In the third chapter, we study the importance of unique stock holdings and unreported actions as the source of hedge fund performance. We calculate four holdings-based unique- ness measures. We find that these holdings-based uniqueness measures are not associated with fund alpha and appraisal ratio. The unreported actions, on the contrary, positively pre- dict hedge fund performance. We also find that hedge funds with greater level of unreported actions tend to exhibit less risk and greater return gap.

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