Hedge fund variables and short-run SEO returns
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 28 March 2018
Issue publication date: 14 May 2018
Abstract
Purpose
The purpose of this paper is to determine if hedge fund variables (HFVs) are associated with short-run daily buy and hold abnormal returns (BHARs) for a 30-day window around announcement dates for seasoned equity offerings (SEOs).
Design/methodology/approach
This paper utilizes the event study metric that computes BHARs. These BHARs are used in a regression model as dependent variables with HFVs and nonhedge fund variables (NFVs) as independent variables. For regression tests, standard errors are clustered at the month level.
Findings
This paper offers three new findings. First, HFVs are significantly associated with SEO BHARs. Second, HFVs are capable being associated with stronger statistical significance compared to NFVs. Third, not using HFVs can produce an omitted-variable bias.
Research limitations/implications
This paper does not have information on which individual hedge funds use a strategy during the month of the offering but only the proportion of hedge funds that do. A research implication is the proportion can be associated with SEO BHARs in a fashion predicted based on a long or short position.
Practical implications
Hedge funds can use trading strategies to capitalize on established patterns of price behavior.
Social implications
Hedge funds enjoy a trading advantage over smaller investors.
Originality/value
This paper is the first study to document the association between hedge fund stratagems and stock returns around a major corporate event. It shows researchers should consider institutional trading strategies when studying the market response to a major corporate event.
Keywords
Citation
Hull, R.M., Kwak, S. and Walker, R. (2018), "Hedge fund variables and short-run SEO returns", International Journal of Managerial Finance, Vol. 14 No. 3, pp. 322-341. https://doi.org/10.1108/IJMF-09-2017-0194
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited