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Hedge Fund Performance - General

Using a large sample of hedge fund data from 1988-1995, we find that hedge funds consistently outperform mutual funds, but not standard market indices. Hedge funds, however, are more volatile than both mutual funds and market indices."
Ackermann, Mcenally and Ravenscraft, 1999

"The industry is characterised by high attrition rates of funds, low covariance with the U.S. stock market, evidence consistent with positive risk-adjusted returns over the time, and little evidence of differential manager skill."
Brown, Goetzmann and Ibbotson (1999)

"Compared with mutual funds, hedge funds offer better risk-return trade-offs: they have higher Sharpe ratios, lower market risks, and higher abnormal returns.
Liang (1999)

"In a mean-variance framework, we find that a combination of alternative investments and passive indexing provides significantly better risk-return tradeoff than passively investing in the different asset classes. Using a broad asset class factor model, we find that the hedge fund strategies outperform the benchmark by a range of 6% to 15% per year. These abnormal returns are associated with an active risk ranging from 0.9% to 4.2% per month."
"We conduct a mean-variance analysis to find that a combination of alternative investments and passive indexing provides significantly better risk-return tradeoff than passively investing in the different asset classes. Using a broad asset class factor model, we find that the hedge fund strategies outperform the benchmark by a range of 6% to 15% per year."
Agarwal and Naik (2000)

"In general, we find that hedge fund strategies added significant value (in excess of estimated survivorship bias) in the early nineties but less so in the late nineties. We also find that aggregated across all funds in our sample, hedge funds that do not use leverage show, on average, larger alphas and better information ratios compared to the funds that use leverage, across different time periods."
Agarwal and Naik (2000)

"The performance of hedge funds for several individual strategies and different subperiods, including the Asian Crisis period, indicates limited evidence of persistence in performance but not for extreme performers."
Capocci and Hubner

"First, good performers in a given year experience significantly larger money-flows in the subsequent year and this performance-flow relation is convex. Second, funds with persistently good (bad) performance attract larger (smaller) inflows compared to those that show no persistence. Third, we find that money-flows are positively associated with managerial incentives measured by the delta of the option-like incentive-fee contract offered to hedge fund managers. Fourth, when we examine the relation between flows and future performance, we find that larger hedge funds with greater inflows are associated with worse performance in the future, a result consistent with decreasing returns to scale in the hedge fund industry. Fifth, we find that funds with better managerial incentives (those with greater delta) are associated with better performance in the future. Finally, we find that unlike individual hedge funds, funds of hedge funds enjoy economies of scale."
Agarwal, Daniel and Naik

"We find that about 25 percent of hedge funds earn positive excess returns, and that the frequency and magnitude of funds' excess returns differ markedly by investment style. [...] and find evidence of significant persistence among both winners and losers. These findings together with our finding that hedge funds that pay managers higher incentive fees also have higher excess returns are consistent with the view that fund manager skill may be a partial explanation for the positive excess returns earned by hedge funds."
Edwards and Caglayan

Recent Papers on Hedge Fund Performance

Top 10 Papers on Hedge Fund Performance

  1. ACKERMANN, C., R. MCENALLY and D. RAVENSCRAFT, 1999. The Performance of Hedge Funds: Risk, Return, and Incentives. The Journal of Finance. [Cited by 111]
  2. LIANG, B., 1999. On the Performance of Hedge Funds. Financial Analysts Journal. [Cited by 60]
  3. BROWN, S.J., W.N. GOETZMANN and R.G. IBBOTSON, 1998. Offshore hedge funds: survival & performance 1989-1995. [Cited by 56]
  4. AGARWAL, V. and N.Y. NAIK, 2000. Multi-Period Performance Persistence Analysis of Hedge Funds. Journal of Financial and Quantitative Analysis. [Cited by 48]
  5. HSIEH, D.A. and W. FUNG, Performance Characteristics of Hedge Funds and CTA Funds: Natural vs. Spurious Biases. papers.ssrn.com. [Cited by 40]
  6. AGARWAL, V. and N.Y. NAIK, 2000. On Taking the Alternative Route: Risks, Rewards, and Performance Persistence of Hedge Funds. Journal of Alternative Investments. [Cited by 36]
  7. BROWN, S.J., W.N. GOETZMANN and R.G. IBBOTSON, 1999. Offshore Hedge Funds: Survival and Performance, 1989-95. Journal of Business. [Cited by 33]
  8. LIANG, B., 2001. Hedge Fund Performance: 1990-1999. Financial Analysts Journal. [Cited by 30]
  9. BROOKS, C. and H. KAT, 2002. The Statistical Properties of Hedge Fund Index Returns and Their Implications for Investors. Journal of Alternative Investments. [Cited by 28]
  10. AMIN, G. and H. KAT, 2003. Hedge Fund Performance 1990-2000: Do the ‘Money Machines' Really Add Value?. Journal of Financial and Quantitative Analysis. [Cited by 22]

Bibliography