| Hedge Funds
and the Technology Bubble
||Stefan Nagel (Stanford University)
Finance, (2004), 59(5), 2013-2040.
article documents that hedge funds did not exert a correcting
force on stock prices during the technology bubble. Instead,
they were heavily invested in technology stocks. This does not
seem to be the result of unawareness of the bubble: Hedge funds
captured the upturn, but, by reducing their positions in stocks
that were about to decline, avoided much of the downturn. Our
findings question the efficient markets notion that rational
speculators always stabilize prices. They are consistent with
models in which rational investors may
prefer to ride bubbles because of predictable investor
sentiment and limits to arbitrage.
||Hedge Funds, Bubbles, Limits to Arbitrage, Synchronization, Market Timing,
Prize for the best article published in the Journal of Finance
2004 (First Prize).
Bloomberg Dec., 1st, 2004.