Hedge funds vs SEO firms: a comparative analysis

Abstract

PurposeThe purpose of this paper is to determine if hedge funds perform poorly as claimed by more recent research. The authors find hedge funds perform well from 2001 to 2013 when compared to sample of firms known to experience superior performance, namely, a sample of seasoned equity offerings (SEOs).Design/methodology/approachThis paper uses a portfolio approach in comparing the performance of hedge funds and SEO firms. Other comparisons involve a number of common methodologies used to compute and analyze short-run and long-run returns.FindingsContrary to a growing and prevalent belief, the paper offers evidence hedge funds as a whole have performed well for a recent 13-year period. This finding includes periods up to six years around SEO announcement months.Research limitations/implicationsThis paper is limited to examining monthly returns for a portfolio of hedge funds. This limitation led to incorporating a portfolio approach.Practical implicationsThe findings suggest that a portfolio of hedge funds are an important investment consideration. This consideration has practical implications because investing in a portfolio of hedge funds has become more available for all investors in recent years.Social implicationsSociety can be enhanced as this paper helps future investors make optimal investment decisions.Originality/valueThis paper adds to the hedge fund research by being the first paper to compare the performance of hedge funds with that for firms undergoing an important corporate event. The findings are new and can impact investment decision making.