Competition, scale and hedge fund performance: Evidence from merger arbitrage

摘要

The study explores the impact of sector and individual fund's size on performance. We demonstrate that alpha is related to demand for arbitrage capital as much as to its supply. Sector size affects alpha via price impact channel: larger scale depresses merger arbitrage spreads, thus lowering alpha. While we find that fund size has no impact on alpha, managerial skill has an economically significant impact of funds' performance.