Abstract
Analyzing trading of hedge funds facing substantial outflows, we find that hedge funds that trade against the flow display significant stock-picking skills. Stocks purchased by hedge funds facing large outflows deliver positive ex-post abnormal returns. Such “revealed under pressure” stock-picking skills are higher after 2007-2008 financial crisis and for hedge funds with larger size, more illiquid assets, or stronger incentives to perform to build up a track record. Funds that engage in the trading against the flow also have higher chances of survival over the consequent quarter.
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