Study Examines The Effect Of Increasing Hedge Fund Ownership On Subsequent Stock Returns.
It has long been thought that following the actions of the so-called “smart money,” in this case, hedge funds, will produce positive incremental returns.
The chart below suggests that this notion may be valid, with increasing hedge fund ownership producing superior incremental returns.
Investments should not be made based solely on this criterion, as smart people can be wrong. Isaac Newton (inventor of physics, calculus, and general bright light) lost a significant part of his wealth late in life by investing in the South Sea bubble.
Nonetheless, the actions of “smart money” bear watching, which makes the recent trend of hedge funds reducing long exposure to equity markets worthy of note.
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