Publication Type

Journal Article

Version

Postprint

Publication Date

9-2009

Abstract

This article analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asian-focused hedge funds. We find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72 percent per year. The local information advantage is pervasive across all major geographical regions, but is strongest for Emerging Market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. We show also that distant funds, especially those based in the U.S. and the U.K., are able to raise more capital, charge higher fees, and set longer redemption periods, despite their underperformance relative to nearby funds. It appears that distant funds trade investment performance for better access to capital.

Keywords

hedge funds, location, geography, region, performance, Asian hedge funds

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Wealth Management; Money and Economic Growth

Publication

Review of Financial Studies

Issue

9

First Page

3531-3561

ISSN

0893-9454

Identifier

10.2307/40247669

Publisher

Oxford University Press

Additional URL

http://www.jstor.org/stable/40247669

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