Publication Type
Journal Article
Version
publishedVersion
Publication Date
2-2021
Abstract
This paper examines how market frictions influence the managerial incentives and organizational structure of new hedge funds. We develop a stylized model in which new managers search for accredited investors and have stronger incentives to acquire managerial skill when encountering low investor demand. Fund families endogenously arise to mitigate frictions and weaken the performance incentives of affiliated new funds. Empirically, based on a TASS-HFR-BarclayHedge merged database, we find that ex ante identified cold inceptions facing low investor demand outperform existing hedge funds and hot inceptions facing high demand and that cold stand-alone inceptions outperform all types of family-affiliated inceptions.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Finance
Volume
76
Issue
3
First Page
1427
Last Page
1469
ISSN
0022-1082
Identifier
10.1111/jofi.13009
Publisher
Wiley
Citation
CAO, Charles; FARNSWORTH, Grant; and ZHANG, Hong.
The economics of hedge fund startups: Theory and empirical evidence. (2021). Journal of Finance. 76, (3), 1427-1469.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7056
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