Abstract
The hedge fund literature has already shown that hedge funds and mutual funds follow a different strategy. One result of the literature was that mutual funds herd into or out of stocks following the herd of hedge funds one quarter later. The aim of this paper is to find out whether herding behavior of mutual funds have changed after the financial crisis. Our paper compares mutual funds and equity hedge funds in general (not only large hedge funds). The hypothesis is that mutual funds are not herding to equity hedge funds as strong as before the crisis. We use OLS regressions and correlation analysis to test the aforementioned hypothesis. We found that the monthly returns of hedge funds and mutual funds have synchronized in developed markets after the financial crisis. Therefore, the argument that mutual funds herd hedge funds is at least not as strong as before. The improving effectiveness and price informativeness could be an explanation for this changing environment.
Highlights
Hedge funds were the top performers in the investment universe in the s and at the beginning of the new millennium
We want to present the descriptive statistics for our three periods where we get a first overview about the performance of hedge funds and mutual funds
The basis for our study were the results of Jiao y Ye ( ) who found that mutual funds and hedge funds herd a er each other with a lag of one quarter
Summary
Hedge funds were the top performers in the investment universe in the s and at the beginning of the new millennium. Brown ( ) even spoke of a crisis in the hedge funds industry, because investors significantly reduced their exposure in July. % from January through March and the HFRI Asset Weighted Composite Index and the Dow Jones Credit Suisse Hedge Fund Index recorded an annualized return (a er fees) of only . There are still not many papers in literature which discuss the weakness of the hedge funds industry a er the financial crisis. The authors found a relatively high correlation of hedge funds to the CRB commodity index and to the MSCI Emerging market equity index. Caglayan y Ulutas ( ) already found a strong link between Emerging Market equities, Emerging Market currencies and the future return of global macro hedge funds. There is an increasing general market e iciency and hedge funds were one of the largest profiteers of weaker market e iciency
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