In this paper we analyze the persistence in the performance of hedge funds taking into account look-ahead bias (multi-period sampling bias). To do so, we model liquidation of hedge funds and analyze how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. In contrast to earlier results for mutual funds, the impact of look-ahead bias is exacerbated for hedge funds due to their greater level of total risk. At the four quarter horizon, look-ahead bias can be as large as 3.8%, depending upon the decile of the distribution. At the quarterly level, we …nd positive persistence in hedge fund returns, also after correcting for investment style. The empirical pattern at the annual level is also consistent with positive persistence, but its statistical signi…cance is weak.

We explore the flow-performance interrelation by explicitly separating the investment and divestment decisions of hedge fund investors. The results show that different determinants and evaluation horizons underlie both decisions. While money inflows are sensitive to past long-run performance, outflows exhibit an immediate and sustained response to past performance in the short run. As a consequence, the shape of the flow-performance relation differs depending on the time horizon being analyzed. We find a weaker flow-performance relation for winning funds at quarterly horizons compared to annual horizons, which may explain why quarterly persistence in hedge fund performance is not competed away. Indeed, we also find evidence that most investors are unable to exploit the persistence of the winners. Conversely, investors are fast and successful in deallocating from the persistent losers, ensuring a disciplining mechanism for lowquality funds. Further, our findings do not support the existence of smart money.

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We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for‐profit and nonprofit MFIs in 67 countries over 2002–2008. Controlling for interest rate ceilings and other country‐specific factors, we first find that nonprofits are relatively insensitive to industry‐wide concentration changes, while for‐profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for‐profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.

We explore the interaction between fairness attitudes and reference dependence both theoretically and experimentally. Our theory of fairness behavior under reference-dependent preferences in the context of ultimatum games, defines fairness in the utility domain and not in the domain of dollar payments. We test our model predictions using a within-subject design with ultimatum and dictator games involving gains and losses of varying amounts. Proposers indicated their offer in gain-and (neatly comparable) loss-games; responders indicated minimum acceptable gain and maximum acceptable loss. We find a significant "generosity effect" in the loss domain: on average, proposers bear the largest share of losses as if anticipating responders' call for a smaller share. In contrast, reference dependence hardly affects the outcome of dictator games -where responders have no veto right-though we detect a small but significant "compassion effect", whereby dictators are on average somewhat more generous sharing losses than sharing gains.