Disagreement between Hedge Funds and Other Institutional Investors and the Cross-Section of Expected Stock Returns

The Financial Review

56 Pages Posted: 9 Oct 2020 Last revised: 17 May 2022

See all articles by Mustafa Onur Caglayan

Mustafa Onur Caglayan

Florida International University

Umut Celiker

Cleveland State University - Monte Ahuja College of Business

Gokhan Sonaer

Duquesne University

Date Written: May 10, 2022

Abstract

We find strong disagreements between hedge funds and other institutions in their common stock trades are twice as likely as agreements. Overall success of hedge funds’ trades and poor performance of non-hedge funds’ trades are both confined to disagreement stocks. Although hedge funds are commonly positive feedback traders, they are neither positive nor negative feedback traders for stocks heavily sold by other institutions. Hedge funds also depend less on earnings news. Our findings highlight the importance of disagreement in studying the performance of institutional investors’ trades and are consistent with the notion that skilled investors rely less on public information.

Keywords: disagreement, institutional investors, mispricing

JEL Classification: G10, G11, G14

Suggested Citation

Caglayan, Mustafa Onur and Celiker, Umut and Sonaer, Gokhan, Disagreement between Hedge Funds and Other Institutional Investors and the Cross-Section of Expected Stock Returns (May 10, 2022). The Financial Review, Available at SSRN: https://ssrn.com/abstract=3705635 or http://dx.doi.org/10.2139/ssrn.3705635

Mustafa Onur Caglayan (Contact Author)

Florida International University ( email )

Miami, FL

Umut Celiker

Cleveland State University - Monte Ahuja College of Business ( email )

1860 E 18th St #420
Cleveland, OH 44114
United States

Gokhan Sonaer

Duquesne University

600 Forbes Avenue
Pittsburgh, PA 15282
United States

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