Bing Liang

Shanghai Jiao Tong University | SJTU

To understand the nature of hedge fund managers’ skills, we study the implementation of risk arbitrage by hedge funds using their portfolio holdings and comparing them with those of other institutional arbitrageurs. We find that hedge funds significantly outperform a naive risk-arbitrage portfolio by 3.7% annually on a risk-adjusted basis, whereas...

We use a new hedge fund data set from a separate account platform to examine (1) how much of hedge fund return smoothing is due to main fund–specific factors, such as managerial reporting discretion and (2) the costs of removing hedge fund share restrictions. These accounts trade pari passu with matching hedge funds but feature third-party reportin...

To understand the nature of hedge fund managers’ skills, we study the implementation of risk arbitrage by hedge funds using their portfolio holdings and comparing them with those of other institutional arbitrageurs. We find that hedge funds significantly outperform a naive risk arbitrage portfolio by 3.7% annually on a risk-adjusted basis, while no...

We examine the relation between changes in hedge fund stock holdings and measures of informational efficiency of equity prices derived from transactions data, and find that, on average, increased hedge fund ownership leads to significant improvements in the informational efficiency of equity prices. The contribution of hedge funds to price efficien...

We examine the relation between changes in hedge fund stock holdings and measures of informational efficiency of equity prices derived from transactions data, and find that, on average, increased hedge fund ownership leads to significant improvements in the informational efficiency of equity prices. The contribution of hedge funds to price efficien...

This paper examines asset allocation dynamics of hedge funds through conducting optimal change point test on an asset class factor model. Based on the average F-test and the Bayesian Information Criterion (BIC), we find that more dynamic hedge funds exhibit significantly better quality than less dynamic funds, signaled by lower return volatility, s...

We explore a new dimension of fund managers’ timing ability by examining whether they can time market liquidity through adjusting their portfolios’ market exposure as aggregate liquidity conditions change. Using a large sample of hedge funds, we find strong evidence of liquidity timing. A bootstrap analysis suggests that top-ranked liquidity timers...

In this paper we study hedge fund styles by examining both self-reported classification and a return-based classification on a sample of hedge funds over the period of 2005 to 2011. Using seven versions of the Lipper/TASS data, we are able to track self-reported classification on an annual basis. We show that style shifts exist in the database, sug...

We study the implementation of risk (or merger) arbitrage by hedge funds and other institutional arbitrageurs, and document the increasing role that arbitrageurs have in the takeover process. We find that hedge funds significantly outperform other institutional arbitrageurs in risk arbitrage. Previous studies evaluating hedge fund managers based on...

As alternative investment vehicles, hedge funds have gained tremendous popularity in the last decade. This article summarizes hedge funds in terms of their characteristics, return distribution, performance and risk measures, and indices.

Risk Management Research Report (RMRR) surveys and screens the flow of academic articles on risk management and presents extended scholarly summaries of today’s most important scholarly work in a convenient format on a timely basis. Each issue features approximately 15 of the most important scholarly articles in risk management published within the...

This paper compares downside risk measures that incorporate higher return moments with traditional risk measures such as standard deviation in predicting hedge fund failure. When controlling for investment strategies, performance, fund age, size, lockup, high-water mark, and leverage, we find that funds with larger downside risk have a higher hazar...

This paper studies the effect of share restrictions on the flow-performance relation of individual hedge funds. As such, we reconcile previous research that shows conflicting results for this relation without explicitly considering restrictions. Specifically, we find that hedge funds exhibit a convex flow-performance relation in the absence of shar...

Contrary to offshore hedge funds, U.S.-domiciled (“onshore”) funds are subject to strict marketing prohibitions, accredited investor requirements, a limited number of investors, and taxable accounts. We exploit these differences to test predictions about organizational design, investment strategy, capital flows, and fund performance. We find that o...

This paper examines whether self-described market timing hedge funds have the ability to time the U.S. equity market. We propose a new measure for timing return and volatility jointly that relates fund returns to the squared Sharpe ratio of the market portfolio. Using a sample of 221 market timing funds during 1994–2005, we find evidence of timing...

"This paper analyses the risk-return trade-off in the hedge fund industry. We compare semi-deviation, value-at-risk (VaR), Expected Shortfall (ES) and Tail Risk (TR) with standard deviation at the individual fund level as well as the portfolio level. Using the""Fama and French (1992)""methodology and the combined live and defunct hedge fund data fr...

It is mysterious that the same hedge fund may report different performance measures in different places. This paper explores why it is the case. We find that auditing plays an important role in explaining this difference. Due to the private nature, a significant amount of hedge funds are not effectively audited. Especially, defunct funds are less e...

Using two large hedge fund databases, this paper empirically tests the presence and significance of a cross-sectional relation between hedge fund returns and value at risk (VaR). The univariate and bivariate portfolio-level analyses as well as the fund-level regression results indicate a significantly positive relation between VaR and the cross-sec...

This paper examines liquidity premium focusing on the difference between offshore and onshore hedge funds. Due to tax provisions and regulatory concerns, offshore and onshore hedge funds have different legal structures, which lead to differences in share restrictions such as a lockup provision. We find that offshore investors collect higher illiqui...

We thank Chris Schwarz for excellent research assistance. We thank participants at the European Financial Management Association (EFMA) 2006 annual meeting for excellent comments and suggestions. All remaining errors are our own. Abstract About $1 trillion is now managed by hedge funds, most of which exhibit higher levels of turnover than their lon...

Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund-specific risk and the lack of transparency may give fiduciaries pause. In addition, many of the most attractive hedge funds are closed to new investment. Funds of funds re...

In this paper, we study alternative investment vehicles such as hedge funds, funds-of-funds, and commodity trading advisors (CTAs) by investigating their performance, risk, and fund characteristics. Considering them as three distinctive investment classes, we study them not only on a stand-alone basis but also on a portfolio basis. We find several...

Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund specific risk and the lack of transparency may give fiduciaries pause. In addition, many of the most attractive hedge funds are closed to new investment. Funds of funds re...

We examine the risk characteristics and capital adequacy of hedge funds through the Value-at-Risk approach. Using extensive data on nearly 1,500 hedge funds, we find only 3.7% live and 10.9% dead funds are undercapitalized as of March 2003. Moreover, the undercapitalized funds are relatively small and constitute a tiny fraction of total fund assets...

Using a large database, I studied hedge fund performance and risk during an almost 10-year period from 1990 to mid-1999. The empirical results show that hedge funds had an annual return of 14.2 percent in this period, compared with 18.8 percent for the S&P 500 Index. The S&P 500 is much more volatile, however, than hedge funds as a whole. Annual su...

This article demonstrates that the portfolio approach could suffer a serious problem when the sorting variables contain not only true values but also measurement errors. The grouped measurement errors will be embedded into the data used to test financial models and further bias the testing results. To correct for this measurement‐error problem, I d...

This paper investigates the returns on British collectible postage stamps over the very long run, based on stamp catalogue prices. Between 1900 and 2008, we find an annualized return on stamps of 6.7% in nominal terms, which is equivalent to an average real return of 2.7% per annum. Prices have increased much faster in the second half of the 1960s,...

Using a unique data set, we studied the performance of stock recommendations made by Wall Street Journal all-star analysts. We document that stocks recommended by the all-star analysts outperform benchmarks controlled for size and industry. Stocks recommended by analysts who focus on a single industry outperform those recommended by analysts coveri...

The author investigates whether analysts' recommendations in the 'Dartboard' column of the Wall Street Journal have an impact on stock prices and whether this impact is temporary or long-lived. He documents a significant two-day announcement effect that is reversed within fifteen days. This announcement effect is intertwined with the pros' track re...

This paper investigates hedge fund performance and risk. The empirical evidence indicates that hedge funds differ substantially from traditional investment vehicles such as mutual funds. The funds with watermarks significantly outperform the funds without watermarks. The average hedge fund returns are related positively to incentive fees, the size...

This paper examines analysts' security recommendations in the "Dartboard" column of the Wall Street Journal and tests whether the impact on the recommended security prices is temporary or permanent. We document a two-day announcement effect for the experts' stocks, which exhibits mean reversion and varies with experts' reputation and stock sizes. O...

This paper examines how hedge funds manage their liquidity risk by responding to the aggregate liquidity shock. Using a large sample of hedge funds over the period of 1994-2008, we find strong evidence that hedge fund managers possess liquidity timing ability at both investment strategy level and the individual fund level. They increase (decrease)...