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Do prime brokers intermediate capital?

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  • Sinclair, Andrew J.

Abstract

Prime brokers play an important role in intermediating arbitrage capital to hedge funds. A fund’s peer-group ranking, relative to funds that share the same prime broker, significantly affects how investors respond to its past performance. I decompose the standard performance-flow relationship into two components: (1) flows that respond to overall performance rank, and (2) flows that respond to relative (within prime broker) performance rank. Strong relative rank drives fund in-flows, while poor overall rank drives out-flows. These results suggest that prime brokers intermediate about 40% of the standard performance-flow relationship.

Suggested Citation

  • Sinclair, Andrew J., 2023. "Do prime brokers intermediate capital?," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:jfinin:v:53:y:2023:i:c:s1042957322000572
    DOI: 10.1016/j.jfi.2022.101004
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    References listed on IDEAS

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    More about this item

    Keywords

    Prime brokers; Hedge funds; Fund flows; Intermediation; Arbitrage capital;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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