Research

JOB MARKET PAPER

Hedge Fund Activism Skill, with Daniel Rettl

SSRN Paper Link
Selected Conferences
- Presented: FMA European Conference 2022
- Scheduled: FMA 2022 Annual Meeting, Southern Finance Association 2022 Annual Meeting
Abstract: Hedge fund activism generates persistent performance, but heterogeneity in performance suggests that some hedge fund activists are more skilled than others. We use a Markov Chain Monte Carlo Bayesian estimation algorithm to isolate a time-invariant activist-specific skill component from cumulative abnormal returns. We find considerable differences in this skill component of cumulative abnormal announcement returns of up to 13 - 20 percentage points between the top and bottom skill quintile of hedge fund activists. Out-of-sample tests confirm that our skill estimates are informative about future performance. Differences in skill are also evident in hedge fund activists’ campaign characteristics. The most skilled activists are associated with higher target firm takeover premiums, improved long-term target performance, and more versatile use of campaign tactics.
[Online Appendix]

WORKING PAPERS

Hedge Fund Activism Waves

Abstract: I document significant temporal clustering in hedge fund activism campaigns across sectors. On average 2/3rd of the campaigns in my sample are initiated in 1/3rd of the years from 2001 to 2018. These sector-level waves of hedge fund activism develop during periods of high takeover activity in the sector. I find significant shareholder wealth effects to timing these activism waves, with campaigns initiated at the beginning of the wave earning higher abnormal return around their announcement, which persists for a year after the announcement. The higher value added to targets firms at the beginning of the wave, can be attributed to higher merger completion rates, more flexibility and success in the use of dissident tactics by the activists in their engagement with target firms, presence of a higher fraction of activism-friendly institutional ownership in target firms, and the lower likelihood of these campaigns being initiated by unskilled activists.

WORK IN PROGRESS