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Capital Flows and Hedge Fund Regulation
Author(s) -
Cumming Douglas,
Dai Na
Publication year - 2009
Publication title -
journal of empirical legal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 24
eISSN - 1740-1461
pISSN - 1740-1453
DOI - 10.1111/j.1740-1461.2009.01162.x
Subject(s) - business , hedge fund , finance , capitalization , open end fund , investment fund , robustness (evolution) , cost of capital , economics , microeconomics , institutional investor , profit (economics) , market liquidity , corporate governance , linguistics , philosophy , biochemistry , chemistry , gene
This article introduces a cross‐country law and finance analysis of the regulatory impact on the level of capital flows and the sensitivity of capital flows in response to prior performance (i.e., the “flow‐performance” relationship) in the hedge fund industry. The data indicate that distribution channels in the form of wrappers (securities that combine different products) mitigate flow‐performance sensitivity. Distribution channels via investment managers and fund distribution companies enhance flow‐performance sensitivity. Funds registered in countries that have larger minimum capitalization requirements have higher levels of capital flows. Funds registered in countries that restrict the location of key service providers have lower levels of capital flows. Further, offshore fund flows and calendar effects evidenced in the data are consistent with tax factors influencing capital flows. The findings are robust to selection effects for offshore registrants, among other robustness checks.