This articleanalyzes the relationship between the risk-adjusted performance of hedge funds andtheir proximity to investments using data on Asia-focused hedge funds. I find, relative to anaugmented Fung and Hsieh (2004) factor model, that hedge funds with a physicalpresence (head or research office) in their investment region outperform other hedge funds by3.72% per year. The local information advantage is pervasive across all majorgeographical regions, but is strongest for emerging market funds and fundsholding illiquidsecurities. These results are robust to adjustments for fund fees, serialcorrelation, backfill bias,and incubation bias. I show also that distant funds, especially those based in the UnitedStates and the United Kingdom, are able to raise more capital, charge higher fees, and setlonger redemption periods, despite their underperformance relative to nearby funds. Itappears that distant funds trade investment performance for better access tocapital.
Hedge funds, geography, local information advantage, Asia
Finance | Finance and Financial Management
European Finance Association Meetings 2007, June; Western Finance Association Meetings 2007, August
Justice and the Law Society & University of Queensland, T.C. Beirne School of Law
City or Country
Big Sky, Montana; Ljubljana
TEO, Song Wee Melvyn.
The geography of hedge funds. (2007). European Finance Association Meetings 2007, June; Western Finance Association Meetings 2007, August. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5325
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