Regulatory induced performance persistence: Evidence from hedge funds |
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| Authors: | Douglas Cumming Na Dai Lars Helge Haß Denis Schweizer |
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| Institution: | 1. York University—Schulich School of Business, 4700 Keele Street, Toronto, Ontario, Canada M3J 1P3;2. Center for Institutional Investment Management, School of Business, SUNY at Albany, 1400 Washington Ave, Albany, NY 12222, United States;3. Lancaster University Management School, Lancaster University, Lancaster, LA1 4YX, United Kingdom;4. WHU—Otto Beisheim School of Management, 56179 Vallendar, Germany;1. Basque Centre for Climate Change (BC3) and UPV/EHU, Alameda Urquijo 4 – 4°, 48009 Bilbao, Spain;2. University of the Basque Country UPV/EHU, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain;3. Basque Centre for Climate Change (BC3), Alameda Urquijo 4 – 4°, 48009 Bilbao, Spain;1. Department of Obstetrics and Gynecology, The First Affiliated Hospital of Chongqing Medical University, No.1 Youyi Road, Yuzhong District, Chongqing 400016, People’s Republic of China;2. Laboratory of Lipid and Glucose Research, The First Affiliated Hospital of Chongqing Medical University, No.1 Youyi Road, Yuzhong District, Chongqing 400016, People’s Republic of China;1. Finance Department, INSEAD, Boulevard de Constance, 77305 Fontainebleau, Cedex, France;2. 321 Eppley Center, Michigan State University, East Lansing, MI 48824, USA;3. Carnegie Investment Bank AB, Regeringsg. 56, 103 38 Stockholm, Sweden;4. Russian Presidential Academy of National Economy and Public Administration, Prospect Vernadskogo, 82, Moscow, Russian Federation 119571 |
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| Abstract: | This paper tests the idea that financial regulation can impact performance persistence in the context of the hedge fund industry in 48 countries over the years 1994–2008. The data show evidence of three types of regulation influencing performance persistence: (1) minimum capital restrictions, which restrict lower quality funds and hence increase the likelihood of performance persistence, (2) restrictions on location of key service providers, which restrict human capital choices and hence tend to mitigate performance persistence, and (3) distribution channels, which make fund performance more opaque, decrease the likelihood of performance persistence. We do not find evidence that distribution channels, that promote fund presence to institutional investors, enhance performance persistence. Finally, we show differences in the effect of regulation on persistence by fund quartile ranking. |
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