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Social networks and idiosyncratic risk in the hedge funds industry

Objective

The origin of the hedge funds industry goes back to a small group of people that began to invest in it. Over time pioneers turned to people similar to themselves in order to involve them in the industry. This makes this industry created in the image of their founders and constituted of a network of people close and similar to each other. Above all this kind of network formation affects the performance of this industry and its risk. In particular, it is important to analyse the idiosyncratic risk that is defined as the inability of the actors to see important trends issues on account of cognitive myopia. To assess the idiosyncratic risk is necessary to analyze the cognitive myopia of actors that is to analyze whether or not actors think alike. The aim of this project is to assess the idiosyncratic risk in the hedge funds industry by analysing the individual attributes, the social network linking actors and the actors’ perceptions. In particular, this project proposes to establish the extent to which the hedge fund market is open to systemic risk on account of cognitive bias of the actors and to identify which parts of the market are most at risk. To this aim this project will develop quantitative estimates of the networks of the actors that gives real insight into idiosyncratic risk. The project will look at the attributes of the actors and will be based on their network profiles in order to provide insight into what constitutes idiosyncratic risk and the profile of a winning manager. Besides, the project will look at the organizational and network data of about 9.000 hedge funds in order to investigate the organizational and network determinants of their performance. By looking at both the individual and organizational levels of analysis the project will provide insight of the social system’s patterns that characterize the hedge funds industry and their managers and will establish the dimensions of competition and risk at the basis of the hedge funds performance

Field of science

  • /social sciences/economics and business/business and management/commerce

Call for proposal

FP7-PEOPLE-2007-2-1-IEF
See other projects for this call

Funding Scheme

MC-IEF - Intra-European Fellowships (IEF)

Coordinator

CITY UNIVERSITY OF LONDON
Address
Northampton Square
EC1V 0HB London
United Kingdom
Activity type
Higher or Secondary Education Establishments
EU contribution
€ 161 792,99
Administrative Contact
Claudia Kalay (Dr.)