Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Chris Schwarz, University of California-Irvine
Prime (Information) Brokerage
AbstractThis paper documents that hedge funds gain an information advantage from their prime brokerage services-providing banks regarding the banks’ corporate borrowers. Hedge funds make informed trades in the stocks of firms that obtain loans from their prime-broker banks. The connected hedge funds make abnormally large trades prior to the loan announcement and these trades outperform other trades. The outperformance is particularly strong for (i) trades of hedge funds that have high revenue generation potential for prime brokers and (ii) trades in borrowing firms with high information asymmetry. Finally, we find that these informed trades are based on information regarding the borrowing firm in general, rather than just information about the loan.
Do Hedge Funds Profit from Public Information?
AbstractWe examine whether hedge funds profit from public information. Unique data on hedge funds' use of publicly-available SEC filings show funds accessing filings subsequently exhibit 1.5% higher annualized abnormal returns than non-users. Above-median users earn even higher returns. Usage of filings is not merely a proxy for differences in fund ability. Fund returns are systematically related to the returns of stocks whose filings are viewed, suggesting funds act on acquired information. We conduct multiple analyses to explore why public information acquisition is profitable. Results are most consistent with funds using public information to complement private signals.
- G1 - General Financial Markets