Hedge Fund Innovation
48 Pages Posted: 3 Nov 2012 Last revised: 1 Aug 2022
Date Written: July 5, 2022
Abstract
We analyze innovation and experimentation of hedge funds based on their initial risk profiles. We cluster hedge funds according to self-reported strategy descriptors. Within the clusters, we identify early and late entrants. Early-movers within a cluster of similar funds perform better and survive longer. The performance deteriorates on average as we go from innovators to early and late imitators. Funds that remain unclustered have distinct risk profiles and engage in riskier and less liquid strategies. The results point to a distinct first-mover advantage in the hedge-fund industry, which could be an important driver for experimentation and innovation.
Keywords: hedge funds, first-mover advantage, innovation, clustering
JEL Classification: G15, G23
Suggested Citation: Suggested Citation