Hedge Fund Investors Risk Study
Study Finds Investors Chase Returns Regardless of Risk
The research, conducted by European School of Management & Technology and the Rotterdam School of Management, found that investors pile into investment styles that have performed well over the last three quarters regardless of whether they are taking on higher risks.
Not only does this focus a disproportionate amount of capital in a limited amount of styles and force up the price of overheated securities, but the volatility of hedge fund styles means that strategies that have performed most strongly in the recent past often go on to underperform other styles in subsequent months.
"This research acts as a cautionary tale about falling into the age-old trap of trusting to past performance," said Guillermo Baquero, an author of the research, which is the first to focus on style, or strategy-based investing rather than investors rewarding the performance of individual funds or managers.
"The fact that investors appear unable to recognise the risks of different styles and chase performance at all costs could leave them vulnerable and unprotected," Baquero said. Source