Having a close-knit group of kindred spirits could be a risky business for hedge fund managers, says new research.

The research, published today by the London School of Economics, IESE Business School and the University of Essex, found that hedge fund managers' tendency to share ideas with a small group of like-minded friends exposes them to the increase risk of getting into crowded trades. As they become increasingly wedded to investment ideas, they ignore external warning signs.