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):

Juha Joenvaara

Assistant professor, University of Oulu, Finland

Bernd Scherer, PhD

Managing Director, Deutsche Asset ManagementResearch Associate, EDHEC Business School

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.
Pdf
Frictional Diversification Costs: Evidence from a Panel of Fund of Hedge Fund Ho...
(-1.00 B)
Type: Working paper
Date: le 04/01/2016
Extra information : For more information, please contact EDHEC Research and Development Department [research@drd.edhec.edu]
Research Cluster : Finance

See Also

EDHEC-Risk and Swiss Life AM France set up a research chair to analyse the role of real estate in investment solutions
News
- 17-10-2018
Swiss Life Asset Managers France and EDHEC-Risk Institute have announced the creation...
Lionel Martellini speaking on the application of goal-based investing to retirement strategies at the TrackInsight European Summit in Paris on Nov 7
News
- 16-10-2018
Lionel Martellini, Professor of Finance, EDHEC Business School and Director, EDHEC-Risk...
The EDHEC Executive MBA rises six places in the Financial Times global ranking 2018
News
- 15-10-2018
The Financial Times published today its latest ranking of top Executive MBA programmes...
News
- 11-10-2018
The EDHEC Family Business Centre and Tharawat Family Business Forum, with the...