Value-Oriented Hedge Funds and Market Efficiency: An Empirical Analysis of 13F Holdings

Abstract

This paper searches for potential risk factors that can explain the drivers of alpha that top value-oriented hedge funds gain from the stocks they invest in. To do this, the study first tests whether these hedge funds do indeed choose stocks that generate alpha. The study then tests other potential factors of risk, by looking at SEC 13F hedge fund holdings data. Three factors were tested in this study: 1) Popularity, 2) Concentration, and 3) Sector (Industry) exposure. After testing these three factors, the results provide evidence that popularity is a significant explanatory factor of alpha while concentration and sector exposure are not.