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Thesis: The influence of Hedge Funds on Share Prices

Thesis: The influence of Hedge Funds on Share Prices

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Published by benkedav
MBA Thesis about the influence of hedge funds on share prices.
MBA Thesis about the influence of hedge funds on share prices.

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Published by: benkedav on May 27, 2008
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11/07/2012

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David F. BenkelbergMODULE NUMBER
MBA 2006 
INDIVIDUAL PROJECT
 The influence of hedge funds on share prices 
SUPERVISOR
Michael A.H. Dempster 
Hand in date
Friday 31
st 
August 2007 
10901(Excluding Appendices and Bibliography)I give permission for the following people to have access to my individual project:TickBoxUnavailable for viewing (authorised personnel only)Available to Cambridge University staff and students XAvailable only after consultation with meDo you give permission for your individual project to be made availableon the JBS website as a PDF file (i.e. a file that is read-only, and cannotbe edited)?XIf not, do you give permission for a PDF version to be placed on theIntranet, where only members of Judge Business School can downloadit?I confirm that this piece of work is my own unaided effort and conforms to Judge Business
School’s guidelines on Plagiarism.
 
Please sign: ……………………………………………………….
 
 
 2This paper examines the extend to which hedge funds influence share prices ofpublicly traded companies, by looking at 46 hedge fund related events inGermany between January 2004 and July 2007. There are multiple ways throughwhich hedge funds could push up the price of a share, most notably throughdirect activism, i.e. facilitating corporate change in the target firm that improveperformance as well as through playing out market psychology, i.e. making themarket believe that the target in current undervalued. Unlike related studies in theU.S. which found that hedge funds do have a positive influence on target shares,my research can not find proof for positive (or negative) abnormal returnsattributable to hedge funds. The mean abnormal return of the 46 events is only2.2% when benchmarked against the market index and only 1.3% whenbenchmarked against industry peers. Both values are statistically not significantlydifferent from zero and can therefore not be used as proof of the hypothesis thathedge funds do have a positive influence. The different findings from the U.S. areexplained by the fact that Germany still stresses stakeholder value over
shareholder value and that shareholder activism isn’t a recognized part of German
corporate Governance.There are, however, a few occasions where hedge funds evidently did have adirectly attributable (short-term) influence on share prices so that overall thereport concludes that while
hedge fund’s influence on German shares is weaker
than in the U.S., in some cases hedge funds are able to make a difference.
 
 3
―Are powerful fundamental factors at work to
keep the market as high as it is now or to push it evenhigher, even if there is a downward correction? Or isthe market high only because of some irrationalexuberance
wishful thinking on the part of 
investors that blinds us to the truth of our situation?‖
 Robert J. Shiller 

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