Share Restrictions and Investor Flows in the Hedge Fund Industry
49 Pages Posted: 20 Nov 2015 Last revised: 29 Mar 2019
Date Written: March 7, 2019
We study the effect of share restrictions on the flow-performance relation of individual hedge funds. Consistent with the predictions of our model, hedge funds exhibit a convex flow-performance relation in the absence of share restrictions, similar to mutual funds. However, in the presence of share restrictions, we find an increasingly inverted S-shaped relation. Our evidence is consistent with investors rationally endogenizing the expected future binding restrictions when investing (or disinvesting) their money. Our results on the impact of share restrictions also help reconcile past empirical work on the hedge fund flow-performance relation.
Keywords: hedge fund flows, investor flow restrictions, hedge fund flow-performance relation
JEL Classification: G23, G11
Suggested Citation: Suggested Citation