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Sugata Ray – U of Alabama – Brown Bag Series
27 February 2019 @ 1:30 pm - 2:30 pm
Hedge Fund Hold’em
We find that hedge fund managers who do well in poker tournaments have significantly better fund performance. This effect is stronger for tournaments with more entrants, larger buy-ins, larger cash prizes and for managers who win multiple tournaments, suggesting poker skills are correlated with fund management skills. Investors appear cognizant of this as after a manager wins a poker tournament, net flows to the manager’s fund increase significantly. These increases are concentrated in cases where there is media coverage of the manager’s poker playing, when the tournament win is bigger, and before the JOBS Act (which allowed hedge funds to advertise) was passed. In conjunction with higher net flows, fund alpha also decreases significantly following the tournament win, especially in cases where net inflows are highest, suggesting decreasing returns to scale erode the informativeness of the poker win signal. Given this, hedge fund investors would be better off investing in an otherwise similar manager without poker tournament success.