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The dark side of alternative asset markets: networks, performance and risk taking

The dark side of alternative asset markets: networks, performance and risk taking

Baden-Fuller, Charles, Ferriani, Simone, Mengoli, Stefano and Torlo, Vanina (2011) The dark side of alternative asset markets: networks, performance and risk taking. [Working Paper] (doi:10.2139/ssrn.1781144)

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Abstract

When actors invest in making strong network ties(relationships) with other actors, such ties can potentially influence behavior and subsequent financial performance, but the strength and direction of these effects is debated. Using original fine-grained data that documents the nature and extent of the relationships between Hedge Funds through their Prime Brokers (banks that provide leverage, issue credit lines and serve as bridges between Hedge Funds) we probe the social topology of Hedge Fund to Hedge Fund relationships that shapes this global alternative asset market. Contrasting much recent research that tends to stress the positive effects of network relationships, we find that investing in network relationships in this industry appears to have a “dark side” in terms of both performance and risk taking; where we probe various measures of both performance and risk in line with recent finance literature. We explore the reasons for these effects, and conclude that investing in Hedge Fund to Hedge Fund network ties can lead to inferior performance and increased risks that may not benefit the investor.

Item Type: Working Paper
Additional Information: [1] First published: 8 March 2011. [2] Date posted: 9 March 2011. [3] Published as: Baden-Fuller, Charles, Ferriani, Simone, Mengoli, Stefano and Torlo, Vanina (2011) The dark side of alternative asset markets: Networks, Performance and risk taking. Social Science Research Network. [4] SSRN Working Paper Series. [5] Social Science Research Network (SSRN) is devoted to the rapid worldwide dissemination of social science research and is composed of a number of specialized research networks in each of the social sciences. It is an Open Access Repository.
Uncontrolled Keywords: network, performance, hedge funds industry, hedge funds, network analysis, risk taking, performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Faculty / Department / Research Group: Faculty of Business > Centre for Business Network Analysis
Faculty of Business > Department of Systems Management & Strategy
Related URLs:
Last Modified: 14 Oct 2016 09:18
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/7426

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