Journal
REVIEW OF FINANCIAL STUDIES
Volume 24, Issue 1, Pages 123-168Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/hhq105
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We provide a simple argument that suggests that better-informed hedge funds choose to have less exposure to factor risk. Consistent with this argument, we find that hedge funds that exhibit lower R-squareds with respect to systematic factors have higher Sharpe ratios, higher information ratios, and higher alphas. They also exhibit higher manipulation-proof performance measures and charge higher fees.
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