Ibbotson Founds Hedge Fund Based On Trading Volume

Jun 15 2010 | 1:21am ET

Well-known stock analyst Roger Ibbotson has launched a hedge fund designed to profit from lesser-known stocks.

Ibbotson, founder of Ibbotson Associates who now serves as a finance professor at Yale University, said his research shows that stocks with high volumes of trading consistently underperform the broader markets.

“Stocks with high trading volumes tend to be the glamour companies that get overpriced,” he told TheStreet.com. “Stocks with low volumes are not in the news, and they tend to sell at discounts.” Further focusing on low-volume stocks with high earnings produced an annualized return over the past 34 years of 15.1%.

That strategy is the backbone of the new Zebra Global Liquidity Arbitrage Fund—as well as two new mutual funds. But where the latter will take only long positions in low-volume, high-earnings stocks, the hedge fund will put only half of its money in the strategy.

The other half of the fund’s assets will short stocks with the opposite characteristics.

“We are shorting hot stocks that are fundamentally weak,” Ibbotson said.

The hedge fund will have a minimum investment requirement of $1 million.

Ibbotson sold his eponymous research firm to Morningstar in 2006.

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