Mutual and hedge fund investment strategies: Trading based on post earnings announcement drift anomaly.

摘要

In this study, I explore whether hedge fund managers trade deliberately on Post Earnings Announcement Drift anomaly. Using a unique hand-collected dataset consisting of mandatory quarterly holding disclosure forms submitted to the U.S. Securities and Exchange Commission (SEC) by hedge fund managers, I compare hedge fund investment strategy with that of mutual funds. Following the methodology of Ali, Chen, Yao, and Yu (2008), I show that actively-managed U.S. Mutual and Hedge Funds, on average, trade on the Post Earnings Announcement Drift anomaly. The results also point out that hedge fund managers trade more aggressively on the drift anomaly. Trading on Post Earnings Announcement Drift anomaly persist for top 10% of active-trader funds. I also document that this trading is robust to the control of other fund investment strategies such as size, book-to-market, and momentum. Moreover, mutual funds that actively trade on drift anomaly face higher transaction costs. Similar results are shown for the hedge funds. Both mutual and hedge funds that more actively trade on drift anomaly have less diversified stockholdings and face higher volatility of stock returns in their stockholdings. These features of securities held in fund portfolios induce arbitrage risks and could have a diminishing effect on the fund managers' motivation to exploit drift anomaly more aggressively. Both mutual and hedge fund managers avoid transaction costs in their portfolio optimization decisions for profit concerns. On the other hand, the results provide an interesting discussion for Shleifer and Vishny (1997) arbitrage risk arguments. Because of different fund flow structures, there is a significant difference between mutual and hedge fund managers' arbitrage risk preferences in their portfolio optimization decisions. Volatile markets are attractive for arbitrage since high return volatility is associated with more frequent extreme prices, but since mutual fund managers are prone to fund outflows because of poor short-term performance, they tend to avoid investing in stocks with high return volatility. Hedge funds are protected against short-term fund outflows, and this enables them to be less concerned about arbitrage risk.