Publication Type
Working Paper
Version
publishedVersion
Publication Date
8-2019
Abstract
We show that two novel measures of text sophistication, applied to hedge fund strategy descriptions, encapsulate incremental information about funds. Consistent with the linguistics literature, hedge funds with lexically diverse strategy descriptions outperform, eschew tail risk, and encounter fewer regulatory problems. In line with the literature, hedge funds with syntactically complex strategy descriptions report more regulatory violations and trigger more severe infractions. Fund investors recognize the dichotomy and direct flows accordingly, but not enough to erode away the alphas of lexically diverse funds. Our findings suggest that text sophistication measures provide texture on the cognitive ability and trustworthiness of sophisticated investors.
Keywords
hedge fund managers, investment strategies, lexically diverse descriptions, hedge fund performance
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
First Page
1
Last Page
47
Citation
JOENVAARA, Juha; KARPPINEN, Jari; TEO, Song Wee Melvyn; and TIU, Cristian Ioan.
Text sophistication and sophisticated investors. (2019). 1-47.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6396
Copyright Owner and License
Authors
External URL
https://ssrn.com/abstract=3438758