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Alternative Market Briefing

Paper says 'abnormal' hedge funds trades based on prime broker information flow offer 4% superior performance

Friday, July 07, 2017

Matthias Knab, Opalesque:

The popular press often accuses hedge funds of trading on information not available to other market participants. In this paper, the authors Nitish Kumar, Kevin Mullally, Sugata Ray and Yuehua Tangwe provide evidence that one source of that information is a fund's prime broker. Specifically, they find that hedge funds engage in abnormal trading activity in the stocks of firms to whom their prime brokers provide loans. Moreover, these trades generate superior performance of 2.1 - 4.0% on an annual basis.

Our results have implications for academics, regulators, and corporations. For academics, the paper contributes to the literature document......................

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