Off-campus UMass Amherst users: To download campus access dissertations, please use the following link to log into our proxy server with your UMass Amherst user name and password.

Non-UMass Amherst users: Please talk to your librarian about requesting this dissertation through interlibrary loan.

Dissertations that have an embargo placed on them will not be available to anyone until the embargo expires.

Author ORCID Identifier



Campus-Only Access for Five (5) Years

Document Type


Degree Name

Doctor of Philosophy (PhD)

Degree Program


Year Degree Awarded


Month Degree Awarded


First Advisor

Mila Getmansky Sherman

Second Advisor

Hossein B. Kazemi

Third Advisor

Bing Liang

Fourth Advisor

Erin Conlon

Subject Categories

Finance and Financial Management


This dissertation focuses on studying how investment banks affect hedge fund equity investments through acting as prime brokers for hedge funds. The first chapter studies how the relationships between hedge funds and investment banks are maintained through equity issuance and prime brokerage business. Using a comprehensive dataset of hedge funds and IPO allocations, I examine IPO allocation decisions by investment banks to hedge funds. I find that investment banks whose prime brokers have strong relationships with hedge funds and are lead underwriters of IPOs tend to allocate more IPOs to these hedge funds. Moreover, the allocation to hedge funds is larger when IPOs are underpriced, and the allocations are larger during bearish periods compared to bullish periods. I further document that hedge fund investments in IPOs are determined by the strength of hedge fund-prime broker relationships, rather than by hedge fund manager skills. I also find that hedge funds which have multiple prime brokers tend to invest in more IPOs. As a result, prime brokers implicitly support hedge funds through favorable IPO allocations.

The second chapter finds that hedge funds can profit from anticipating upcoming changes in analysts' recommendations before they become public. I provide evidence supporting the hypothesis that hedge funds that have prime brokerage affiliations with analysts' investment banks have access to information on upcoming analysts' recommendations. Focusing on recommendations issued up to two days following stock holding report date, I find that large hedge funds that are clients of the investment bank (affiliated hedge funds) tend to buy upgrades and sell downgrades in a larger magnitude compared to other hedge funds before the public release of recommendations. Moreover, relative to non-affiliated hedge funds, affiliated hedge funds have a higher probability to trade in a way that is consistent with upcoming recommendation changes and earn higher (or avoid lower) short-term abnormal returns by buying (or selling) before upgrades (or downgrades). The results indicate that prime brokerage affiliation is an important source of private information on analysts' reports for hedge funds.

The third chapter studies hedge funds' equity investment strategies by examining the investment value and risk consequence of their holdings concentration in large-cap and small-cap stocks. We find that stocks, especially small-cap ones, with concentrated hedge fund holdings earn higher future returns than those with less concentrated holdings. We also find that stocks with concentrated hedge fund holdings have higher downside risks, and the holdings concentration expedites the drop of stock performance, especially during financial crisis. In addition, small-cap stocks with higher holdings concentration are associated with hedge funds using higher leverage, consistent with Stein (2009) that deleverage leads to the negative return shock and downside risks in stocks. Our findings suggest that hedge fund managers are skilled in making equity investment under different market efficiency.