Hedge Funds versus SEOs: A Comparative Analysis

dc.contributor.authorWalker, Rosemary
dc.contributor.authorKwak, Sungkyu
dc.contributor.authorHull, Robert M.en_US
dc.dateJuly 2015en_US
dc.description.abstractRecent research has claimed that hedge fund performance has been deteriorating over time. In this paper, we study this claim by comparing hedge fund returns with those of firms undergoing a positive corporate event. The corporate event we chose is a seasoned equity offering (SEO). This choice is justified based on two considerations. First, an SEO is one of the more common and most significant corporate events. Second, an SEO is associated with stock price run-ups exhibiting highly positive stock price performance. Thus, if hedge funds can perform similarly to SEOs, then we have evidence that hedge funds have performed well. We begin our study by comparing a portfolio of SEOs to a portfolio of hedge funds. In the process, we trace normalized price trajectories for these two portfolios and find virtually identical absolute portfolio performances for six years around the SEO announcement month. Both portfolios also have the same risk. We next conduct conventional statistical tests and find evidence that hedge funds outperform SEOs for a number of absolute performance tests especially when we adjust for outliers. Most importantly, when we adjust for risk as measured by total volatility, we find that hedge funds always outperform SEOs. This is true for periods up to six years around the announcement month. Given that hedge funds perform well compared to a corporate event known to take place during period of stock price run-ups, we conclude that the current negativity about hedge fund performance is not warranted.en_US
dc.description.sponsorshipKaw Valley Banken_US
dc.identifier.otherSchool of Business Working Paper Series; No. 177en_US
dc.publisherWashburn University. School of Businessen_US
dc.subjectHedge fundsen_US
dc.subjectSeasoned Equity Offeringen_US
dc.titleHedge Funds versus SEOs: A Comparative Analysisen_US
dc.typeWorking paperen_US
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