Do hedge funds deliver alpha?: a Bayesian and bootstrap analysis
Subject
Finance
Publishing details
Authors / Editors
Kosowski R; Naik N Y; Teo M
Biographies
Publication Year
2006
Abstract
Using a robust bootstrap procedure, we find that top hedge fund performance cannot be explained by luck, and that hedge fund performance persists at annual horizons. Moreover, we show that Bayesian measures, which help overcome the short-sample problem inherent in hedge fund returns, lead to superior performance predictability. Relative to sorting on OLS alphas, sorting on Bayesian alphas yields a 5.5 percent per year increase in the alpha of the spread between the top and bottom hedge fund deciles. Our results are robust, and relevant to investors, as they are neither confined to small funds, nor driven by incubation bias, backfill bias or serial correlation.
Publication Research Centre
Hedge Fund Centre
Series Number
HF-017
Series
BNP Paribas Hedge Fund Centre Working Paper Series