TY - JOUR
T1 - Do hedge funds possess private information about IPO stocks? Evidence from post-IPO holdings
AU - Qian, Hong
AU - Zhong, Zhaodong
N1 - Funding Information: Conference in Finance (CICF). Zhong acknowledges financial support from the David Whitcomb Center for Publisher Copyright: © 2017 The Author.
PY - 2018/6/1
Y1 - 2018/6/1
N2 - Using hedge funds' holdings of IPO stocks, we find that stocks with abnormally high hedge fund holdings, based on stock and deal characteristics, yield abnormal returns. Moreover, hedge funds are able to sell IPO stocks in a timely fashion before long-run underperforming periods start, suggesting that hedge funds possess information advantages in IPO stocks. Finally, we address the question of where hedge funds may have obtained their information advantages. Hedge funds earn higher abnormal returns in "connected" stocks when their prime brokers also serve as IPO underwriters, indicating that such connections enable hedge funds to make more informed investment decisions in IPO stocks.
AB - Using hedge funds' holdings of IPO stocks, we find that stocks with abnormally high hedge fund holdings, based on stock and deal characteristics, yield abnormal returns. Moreover, hedge funds are able to sell IPO stocks in a timely fashion before long-run underperforming periods start, suggesting that hedge funds possess information advantages in IPO stocks. Finally, we address the question of where hedge funds may have obtained their information advantages. Hedge funds earn higher abnormal returns in "connected" stocks when their prime brokers also serve as IPO underwriters, indicating that such connections enable hedge funds to make more informed investment decisions in IPO stocks.
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U2 - 10.1093/rapstu/rax018
DO - 10.1093/rapstu/rax018
M3 - Review article
SN - 2045-9920
VL - 8
SP - 117
EP - 152
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
IS - 1
ER -