- Advertisement -
- Advertisement -

Related

Hedge Funds Make Better Decisions Under Pressure

Latest Report

- Advertisement -

Stockholm (HedgeNordic) – Hedge funds have been facing massive outflows over the past year as investors pull out their capital after last year’s meagre returns. However, a new study finds that hedge fund managers display superior stock-picking skills during times of significant outflows of capital.

In a working paper published on SSRN, Xinyu Cui and Olga Kolokolova from the University of Manchester analyze the trading patterns of hedge funds facing substantial capital inflows or outflows and find that “hedge fund managers are likely to reveal their skills under pressure.” The authors assume that hedge fund managers put different levels of effort into managing their fund’s portfolios depending on the level of investor flows, “with strong outflows inducing higher effort.”

Some hedge fund managers are buying stocks even when experiencing substantial outflows and requiring cash to meet redemptions. Xinyu Cui and Olga Kolokolova observe a remarkable “trading-against-the-flow” behaviour among hedge funds. According to the study, long positions initiated in times of large capital outflows “deliver a significant ex-post abnormal return of +0.31% per month.”

Similarly, the stocks sold by hedge funds during times of large inflows exhibit no future abnormal returns. In addition, the authors find that the positive abnormal returns of the stocks bought by hedge funds decrease with the increase of fund inflows. These results indicate that “hedge funds tend to put more effort into adjusting their portfolios when facing strong outflows.”

Interestingly, the “trading-against-the-flow” abnormal returns are higher for funds with shorter notice periods for redemptions and less stringent share restrictions. This group of funds is more likely to experience sudden outflows than funds with longer notice periods and, hence, might be under higher stress levels during periods of outflows. “This finding further supports our intuition that it is extra pressure associated with the outflows” that induces managers to put more effort into the day-to-day portfolio management activities.

 

Photo by Christian Erfurt on Unsplash

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

Origo’s Johansson Returns to Sohn Conference with High-Conviction Pick

Swedish stock-picking boutique Origo Fonder is gaining fresh recognition following a strategic transformation, strong performance, and growing assets. The firm’s evolution into an “Origo...

Commodities Lift CTAs Amid Turmoil

In June 2025, the NHX CTA Index was up as losses in stocks and bonds were outweighed by profits in commodities, but briefly erupting...

Finserve Global Security Fund Boosts Quant Edge with Martin Redgård

Under lead portfolio manager Joakim Agerback, the Finserve Global Security Fund has successfully capitalized on the global surge in defense, cybersecurity, and space investments...

Visio Allocator Storms Back After Difficult March

After posting the worst monthly performance in its 15-year history with a 13.7 percent decline in March, the team behind the multi-strategy Visio Allocator...

Sissener Expands Investment and Sales Teams with Senior Hires

Just months after bringing on Mads Andreassen as Investment Manager, Norwegian fund boutique Sissener AS continues to expand its team with two key additions....

Fenja Capital Deepens Bench as Analyst Moves to Full-Time Role

After earning his Master’s degree in Economics from Aalborg University, Anders Madsen has transitioned from a part-time role to a full-time analyst position at...

Allocator Interviews

In-Depth: High Yield

Voices

Request for Proposal

- Advertisement -
HedgeNordic
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.