Hedge fund stratagems and long-run SEO firm performance. Issue 7 (8th July 2019)

• Record Type: Journal Article
• Authors: Hull, Robert M.; Kwak, Sungkyu; Walker, Rosemary
• Is Part Of: Managerial finance. Volume 45:Issue 7(2019)
• Page Start: 886
• Page End: 903
• Publication Date: 2019-07-08
• Subjects: Hedge funds -- Seasoned equity offerings -- Trading strategies; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-07-2018-0338
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: The purpose of this paper is to explore if hedge fund variables ( HFVs ) are associated with long-run compounded raw returns ( CRRs ) for seasoned equity offering (SEO) firms for a six-year window around the offering month for firms undergoing SEOs. Design/methodology/approach: The event study methodology is used to calculate long-run CRRs that are used in a regression model as dependent variables. Independent variables include HFVs and nonhedge fund variables ( NFVs ) with standard errors clustered at the month level. Findings: Three new long-run findings, consistent with recent short-run findings, are offered. First, HFVs are significantly associated with long-run CRRs for SEO firms. Second, HFVs perform competitively compared to NFVs . Third, a potential omitted-variable bias results if HFVs are not used. Research limitations/implications: This research assumes that hedge fund managers can identify good (poor) performing SEO firm that allow for profitable long (short) positions. The proportion of hedge funds using a strategy will change in the hypothesized manner needed to make profit. Practical implications: Hedge fund managers can use long-run strategies to capitalize on price movements around significant corporate events. Social implications: Larger institutional traders have investment advantages due to superior knowledge and greater ability to manipulate prices. Originality/value: This research is the first study to detail the significant association between hedge fund stratagems and long-run stock returns for firms undergoing key corporate events. This study demonstrates the need to consider hedge fund strategies when trying to understand stock price movements.