'The New, Patient, Focused Intelligent Investor': Dividends, Hedge Funds, and Active VS Passive Investing

Abstract

We link dividends with profits and good corporate governance. However, do dividends provide other information? Are they useful in identifying the economic cycle? And if so, how might one use that information as to gain an edge when investing in the stock market? We study in details different frequencies of dividend payment across time and find several results that support Baker and Wurgler (2004) paper. Also, we review Cliff Asness’s “Do Hedge Funds Hedge?” paper, extend our analysis on a longer time horizon and perform various Fama French regression as to identify which factors hedge funds tend to rely on to “make a buck”. We find that hedge funds do not “hedge” as much as they say they do, rely on similar investment strategies across asset classes and geography. Finally, we try to determine whether or not an individual investor is better served with active or passive investing. We find that various criteria (return objective, taxes, fees, investing skills) are determinant in this regard.

Keywords: Dividends, Hedge Funds, active, passive, investing, Fama, French