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Frictional Diversification Costs: Evidence from a Panel of Fund of Hedge Fund Holdings
Juha Joenväärä, Bernd Scherer: Using FoFs’ holdings data, we analyse the diversification choices of fund of hedge fund managers. Diversification is not a free lunch. It is not available for every fund of fund.
Author(s) :
Assistant professor, University of Oulu, Finland
Managing Director, Deutsche Asset ManagementResearch Associate, EDHEC Business School
Presentation :
Instead we find a positive log-linear relation between the number of constituent funds in a fund of hedge fund (n) and the respective assets under management (aum). More precisely it takes the form: n2 ∝ AuM. This relation is consistent with the predictions from a model of naive diversification (1/n) with frictional diversification costs such as due diligence costs. Our evidence is econometrically robust across alternative specifications and explanations.| Type : | Working paper |
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| Date : | le 04/01/2016 |
| Extra information : | For more information, please contact EDHEC Research and Development Department [research@drd.edhec.edu] |
| Research Cluster : | Finance |
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Located in Lille, Nice, Paris, London and Singapore, EDHEC is one of the 20 best business schools in the world. Resolutely international and directly connected to the world of business, it is known for the excellence of its research and its capacity to train entrepreneurs and managers able to move the lines.
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