On the Performance of Hedge Funds
نویسندگان
چکیده
This paper investigates hedge fund performance and risk. The empirical evidence indicates that hedge funds differ substantially from traditional investment vehicles such as mutual funds. The funds with watermarks significantly outperform the funds without watermarks. The average hedge fund returns are related positively to incentive fees, the size of the fund, and the lockup period. Hedge funds follow dynamic trading strategies and have low systematic risk. There are low correlations among different strategies. Compared with mutual funds, hedge funds offer better risk-return trade-offs: they have higher Sharpe ratios, lower market risks, and higher abnormal returns. In the period of January 1994 to December 1996, most hedge funds provide positive abnormal returns. Overall, hedge fund strategies dominate mutual fund strategies, hence hedge funds provide a more efficient investment opportunity set for investors.
منابع مشابه
Performance Characteristics of Hedge Funds and Commodity Funds : Natural Versus Spurious
It is well known that the pro forma performance of a sample of investment funds contains biases. These biases are documented in Brown, Goetzmann, Ibbotson and Ross (1992) using mutual funds as subjects. The organization structure of hedge funds, being private and often offshore vehicles, makes data collection a much more onerous task. This amplifies the impact of performance measurement biases....
متن کاملDevelopment of an Analytical Framework for Hedge Fund Investment∗
This research attempts to develop an analytical framework for hedge fund investment. Various issues related to the hedge fund investment have been addressed. This paper focuses on three distinct areas of hedge fund research, namely, bias in hedge fund data, the classification of hedge funds, and performance attribution of hedge funds. All studies, reported in this paper, have been carried out u...
متن کاملDoes the choice of performance measure influence the evaluation of hedge funds?
The Sharpe ratio is adequate for evaluating investment funds when the returns of those funds are normally distributed and the investor intends to place all his risky assets into just one investment fund. Hedge fund returns differ significantly from a normal distribution. For this reason, other performance measures for hedge fund returns have been proposed in both the academic and practiceorient...
متن کاملDo Funds of Hedge Funds Add Value? Evidence from their holdings!!
We examine the value of fund of funds (FoFs) using a new database of the funds’ hedge fund holdings. This data allows a first ever look at the types of hedge funds that FoFs select, as well the ability to gauge the FoFs’ skill at hiring and firing hedge fund managers. We find that FoFs hire larger, younger, and more illiquid hedge funds that have positive past performance. FoFs select hedge fun...
متن کاملThe performance evaluation of hedge funds: a comparison of different approaches using European data
The standard approach to the evaluation of funds assumes a normal return distribution and uses the variance as a measure of the funds risk. A few characteristics of hedge funds, such as the remuneration mechanism of the portfolio manager, make this assumption unacceptable and the traditional approach of Risk Adjusted Performance (RAP) must be revised before applying it to hedge funds. Some auth...
متن کامل