Hedge Fund Stratagems and Long-Run SEO Firm Performance
Author
Walker, Rosemary L.
Kwak, Sungkyu
Hull, Robert M.
Publisher
Washburn University. School of BusinessSponsor
Kaw Valley BankDate
August 2018Metadata
Show full item recordAbstract
Purpose - To explore if hedge fund variables (HFVs) are associated with long-run compounded abnormal returns (CARs) for a six-year window around the offering month for firms undergoing seasoned equity offerings (SEOs).
Design/methodology/approach - The event study methodology is used to calculate Jong-run CARs that are used in a regression model as dependent variables. Independent variables include HFVs and nonhedge fund variables (NFVs) with standard errors clustered at the month level.
Findings - Three new long-run findings, consistent with recent short-run findings, are offered. First, HFVs are significantly associated with long-run CARs for SEO firms. Second, HFVs perform competitively compared to NFVs. Third, a potential omitted-variable bias results if HFVs are not used.
Research limitations/implications -This research assumes that hedge fund managers can identify good (poor) performing SEO firm that allow for profitable long (short) positions. The proportion of hedge funds using a strategy will change in the hypothesized manner needed to make profit.
Practical implications - Hedge fund managers can use long-run strategies to capitalize on price movements around significant corporate events.
Social implications -Larger institutional traders have investment advantages due to superior knowledge and greater ability to manipulate prices.
Originality/value - This research is the first study to detail the significant association between hedge fund stratagems and long-run stock returns for firms undergoing key corporate events. This study demonstrates the need to consider hedge fund strategies when trying to understand stock price movements.