The Journal of Finance

Do Hot Hands Exist among Hedge Fund Managers? An Empirical Evaluation

Published: 1/13/2010,  Volume: 65,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2009.01528.x  |  Cited by: 223

RAVI JAGANNATHAN, ALEXEY MALAKHOV, DMITRY NOVIKOV

In measuring performance persistence, we use hedge fund style benchmarks. This allows us to identify managers with valuable skills, and also to control for option‐like features inherent in returns from hedge fund strategies. We take into account the possibility that reported asset values may be based on stale prices. We develop a statistical model that relates a hedge fund's performance to its decision to liquidate or close in order to infer the performance of a hedge fund that left the database. Although we find significant performance persistence among superior funds, we find little evidence of persistence among inferior funds.

Optimal Diversification: Reconciling Theory and Evidence

Published: 3/25/2004,  Volume: 59,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2004.00641.x  |  Cited by: 160

Joao Gomes, Dmitry Livdan

In this paper we show that the main empirical findings about firm diversification and performance are consistent with the maximization of shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of synergies. By explicitly linking the diversification strategies of the firm to differences in size and productivity, our model provides a natural laboratory to investigate several aspects of the relationship between diversification and performance. Specifically, we show that our model can rationalize the evidence on the diversification discount (Lang and Stulz (1994)) and the documented relation between diversification and productivity (Schoar (2002)).

Strategic Asset Allocation in Money Management

Published: 1/7/2014,  Volume: 69,  Issue: 1  |  DOI: 10.1111/jofi.12106  |  Cited by: 92

SULEYMAN BASAK, DMITRY MAKAROV

This paper analyzes the dynamic portfolio choice implications of strategic interaction among money managers who compete for fund flows. We study such interaction between two risk‐averse managers in continuous time, characterizing analytically their unique equilibrium investments. Driven by chasing and contrarian mechanisms when one is well ahead, they gamble in the opposite direction when their performance is close. We also examine multiple and mixed‐strategy equilibria. Equilibrium policy of each manager crucially depends on the opponent's risk attitude. Hence, client investors concerned about how a strategic manager may trade on their behalf should also learn competitors' characteristics.

Sizing Up Repo

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12168  |  Cited by: 307

ARVIND KRISHNAMURTHY, STEFAN NAGEL, DMITRY ORLOV

To understand which short‐term debt markets experienced “runs” during the financial crisis, we analyze a novel data set of repurchase agreements (repo), that is, loans between nonbank cash lenders and dealer banks collateralized with securities. Consistent with a run, repo volume backed by private asset‐backed securities falls to near zero in the crisis. However, the reduction is only $182 billion, which is small relative to the stock of private asset‐backed securities as well as the contraction in asset‐backed commercial paper. While the repo contraction is small in aggregate, it disproportionately affected a few dealer banks.

Financially Constrained Stock Returns

Published: 7/16/2009,  Volume: 64,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2009.01481.x  |  Cited by: 215

DMITRY LIVDAN, HORACIO SAPRIZA, LU ZHANG

We study the effect of financial constraints on risk and expected returns by extending the investment‐based asset pricing framework to incorporate retained earnings, debt, costly equity, and collateral constraints on debt capacity. Quantitative results show that more financially constrained firms are riskier and earn higher expected stock returns than less financially constrained firms. Intuitively, by preventing firms from financing all desired investments, collateral constraints restrict the flexibility of firms in smoothing dividend streams in the face of aggregate shocks. The inflexibility mechanism also gives rise to a convex relation between market leverage and expected stock returns.

Oil Futures Prices in a Production Economy with Investment Constraints

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01466.x  |  Cited by: 89

LEONID KOGAN, DMITRY LIVDAN, AMIR YARON

We document a new stylized fact, that the relationship between the volatility of oil futures prices and the slope of the forward curve is nonmonotone and has a V‐shape. This pattern cannot be generated by standard models that emphasize storage. We develop an equilibrium model of oil production in which investment is irreversible and capacity constrained. Investment constraints affect firms' investment decisions and imply that the supply elasticity changes over time. Since demand shocks must be absorbed by changes in prices or changes in supply, time‐varying supply elasticity results in time‐varying volatility of futures prices. Estimating this model, we show it is quantitatively consistent with the V‐shape relationship between the volatility of futures prices and the slope of the forward curve.

Relationship Trading in Over‐the‐Counter Markets

Published: 12/22/2019,  Volume: 75,  Issue: 2  |  DOI: 10.1111/jofi.12864  |  Cited by: 141

TERRENCE HENDERSHOTT, DAN LI, DMITRY LIVDAN, NORMAN SCHÜRHOFF

We examine the network of trading relationships between insurers and dealers in the over‐the‐counter (OTC) corporate bond market. Regulatory data show that one‐third of insurers use a single dealer, whereas other insurers have large dealer networks. Execution prices are nonmonotone in network size, initially declining with more dealers but increasing once networks exceed 20 dealers. A model of decentralized trade in which insurers trade off the benefits of repeat business and faster execution quantitatively fits the distribution of insurers' network size and explains the price–network size relationship. Counterfactual analysis shows that regulations to unbundle trade and nontrade services can decrease welfare.

Monetary Policy, Inflation, and Crises: Evidence from History and Administrative Data

Published: 1/27/2026,  Volume: 81,  Issue: 2  |  DOI: 10.1111/jofi.70023  |  Cited by: 5

GABRIEL JIMÉNEZ, DMITRY KUVSHINOV, JOSÉ‐LUIS PEYDRÓ, BJÖRN RICHTER

We show that a U‐shaped monetary rate path increases banking crisis risk, via credit and asset price cycles, analyzing 17 countries over 150 years. Rate hikes (raw or instrumented) increase crisis risk, but only if preceded by prolonged cuts. These patterns are unique to banking crises, unlike noncrisis recessions. Regarding the mechanism, prolonged cuts raise the likelihood of large credit and asset price booms, consistent with higher credit supply and risk‐taking. Subsequent hikes strongly reduce credit and asset prices, and increase banks' realized credit risk, rather than interest rate risk. We find consistent results in administrative loan‐level data for Spain.

Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit, and Global Financial Cycles

Published: 5/22/2026,  Volume: 81,  Issue: 4  |  DOI: 10.1111/jofi.70054  |  Cited by: 0

RODRIGO BARBONE GONZALEZ, DMITRY KHAMETSHIN, JOSÉ‐LUIS PEYDRÓ, ANDREA POLO

We show that FX interventions can be effective, particularly in attenuating global financial spillovers. We exploit global financial shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: bank credit (to firms), foreign credit to banks, and employer‐employees. After the U.S. Taper Tantrum (followed by emerging markets' FX turbulence), Brazilian banks with more foreign debt cut credit supply, reducing firm‐level employment. A subsequent large policy intervention supplying derivatives against FX risks — hedger of last resort — halved the negative effects. A 2008 to 2015 panel exploiting global FX shocks and local FX interventions confirms the results and the hedging channel. However, the FX policy entails fiscal and moral hazard costs.

Quote Competition in Corporate Bonds

Published: 5/22/2026,  Volume: 81,  Issue: 4  |  DOI: 10.1111/jofi.70048  |  Cited by: 1

TERRENCE HENDERSHOTT, DAN LI, DMITRY LIVDAN, NORMAN SCHÜRHOFF, KUMAR VENKATARAMAN

Dealer quotes in corporate bonds, though indicative, lower trading costs and increase trading volume. Dealers offering higher quality quotes attract more order flow and execute trades at favorable prices. Dealers advertise quotes to manage their inventories and attract orders from nonrelationship clients. However, quote competition is imperfect. The best quotes often fail to attract orders, and trade‐throughs are common. Nevertheless, quote competition is important as clients exploit quotes from other dealers in negotiations, forcing dealers with lower quality quotes to offer price improvements. Quoting is not a zero‐sum game, as more active bond‐level quoting leads to more bond‐level trading.