The Returns to Hedge Fund Activism
Coauthor(s): Alon Brav, Frank Partnoy, Randall Thomas.
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Hedge fund activism is a new form of investment strategy. Using a large handcollected data set from 2001 to 2006 we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately seven percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. We also find large positive abnormal return to the self-reported hedge fund activists during our sample period. The abnormal return significantly exceeds the returns to all hedge funds, the returns to equity-oriented hedge funds and is robust to alternative risk adjustments and selection biases.
Source: Financial Analyst Journal
Brav, Alon, Wei Jiang, Frank Partnoy, and Randall Thomas. "The Returns to Hedge Fund Activism." Financial Analyst Journal 64 (2008): 45-61.