Essays on the economics of hedge funds

Research output: ThesisDoctoral ThesisCollection of Articles


The common denominator of the four essays in this dissertation is that they all study hedge funds. Over the past two decades, hedge funds have grown into a sizable industry, with the total assets under management topping 2 trillion dollars. This rapid growth, tales of stellar performance, and alleged roles in all recent financial turmoils have prompted both public and academic interest in hedge funds. This dissertation contributes to the existing literature and public debate by providing four peeks under the hood to better understand hedge funds. The first essay studies currency speculation by hedge funds. It shows that hedge funds invest in a simple carry trade strategy, and that this activity affects interest rates, exchange rates, and the returns to currency speculation. The empirical results are consistent with a theoretical model of segmented international financial markets. The second essay investigates whether hedge funds provide immediacy on the stock market. The essay finds that hedge funds supply immediacy, but the supply decision varies significantly across fund types and in time. The immediacy supply of hedge funds also affects market liquidity, the liquidity premium, return reversals, and market volatility. The third essay finds capital flows to have a significant positive impact on hedge fund returns. Further, the impact of flows accounts for a sizable proportion of historical estimates of hedge fund alphas. The fourth and final essay studies return misreporting by hedge funds. It shows that a simple theoretical model can capture hedge fund managers’ misreporting motives. Misreporting affects estimates of risks and returns of hedge funds, as well as investors’ investment decisions. This dissertation reveals new facts about the sources of hedge fund returns, the macro-level effects of hedge fund activities, and the behavior of hedge fund managers and investors. These results should be of interest to the academic audience, as well as to the investing public and policymakers.
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
Print ISBNs978-952-60-4584-9
Publication statusPublished - 2012
MoE publication typeG5 Doctoral dissertation (article)


  • capital flow
  • financing
  • investment funds
  • pääomavirrat
  • rahoitus
  • sijoitusrahastot

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