Home Bias and Local Contagion: Evidence from Funds of Hedge Funds / Clemens Sialm, Zheng Sun, Lu Zheng.

By:

Sialm, Clemens

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w19570.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper analyzes the geographical preferences of hedge fund investors and the implication of these preferences for hedge fund performance. We find that funds of hedge funds overweight their investments in hedge funds located in the same geographical areas and that funds of funds with a stronger local bias exhibit superior performance. However, this local bias of funds of funds adversely impacts the hedge funds by creating excess comovement and local contagion. Overall, our results suggest that while local funds of funds benefit from local performance advantages, their local bias creates market segmentation that could destabilize financial markets.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w19570 (Browse shelf(Opens below))	Not For Loan

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October 2013.

This paper analyzes the geographical preferences of hedge fund investors and the implication of these preferences for hedge fund performance. We find that funds of hedge funds overweight their investments in hedge funds located in the same geographical areas and that funds of funds with a stronger local bias exhibit superior performance. However, this local bias of funds of funds adversely impacts the hedge funds by creating excess comovement and local contagion. Overall, our results suggest that while local funds of funds benefit from local performance advantages, their local bias creates market segmentation that could destabilize financial markets.