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.