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• Evidence of anti-herding by hedge fund managers from a sample of 1,899 U.S. hedge funds. • Hedge funds anti-herd primarily based on fundamental information. • Funding illiquidity has a stronger effect on the formation of anti-herding than other market conditions. • Hedge funds that anti-herd earn significantly higher excess returns in subsequent periods. • Hedge funds that anti-herd experience greater idiosyncratic volatility in subsequent periods. Utilizing a dataset of 1,899 U.S. hedge funds, we present evidence of anti-herding behaviour among the U.S. hedge fund managers. Hedge funds anti-herd irrespective of market volatility and credit deterioration conditions although funding illiquidity has a stronger effect on the formation of anti-herding behaviour across the majority of hedge fund schemes analysed. More importantly, we document significant economic implications of anti-herding and show that hedge funds associated with high degree of anti-herding earn significantly higher excess returns over those with low degree of anti-herding, particularly in the intermediate and long horizons up to one year. At the same time, hedge funds that anti-herd experience greater idiosyncratic volatility in subsequent periods, presenting a novel perspective to the relationship between anti-herding, idiosyncratic volatility and expected returns. While the finding of anti-herding in the hedge fund industry is not unexpected as the main attraction of hedge funds is to devise proprietary trading strategies that is based on private information, our findings provide novel insight to the link between idiosyncratic volatility and expected returns in the context of anti-herding in the hedge fund industry. [ABSTRACT FROM AUTHOR]

We show that, after the revelation of financial fraud in a major pension fund manager, two-thirds of affected investors fail to divest. Inert investors are on average younger, of lower SES and more influenced by default options. The majority of those who divest move their money to the only state-run option on the fund menu. The revelation of fraud also induces a small movement of investors from non-fraudulent private investment funds to the state alternative. We further show that most fraud victims end up in underperforming high-fee funds through their prior affiliation with a subscription-based financial advisor. Our analysis is based on the remarkable events surrounding the expulsion of Allra from the Swedish Premium Pension, and administrative, individual-level data on mutual fund choices and background characteristics. Our results illustrate that fraudulent fund managers may exploit widespread consumer biases in choice-oriented pension plans, and that information interventions by the government are important but far from fully effective in nudging victimized investors to take the right action. Pension plans may be characterized by investor inertia even under extreme circumstances such as fraud. [ABSTRACT FROM AUTHOR]