On taking the 'alternative' route: risks, rewards, style and performance persistence analysis of hedge funds
Subject
Finance
Publishing details
Centre for Hedge Fund Research and Education Working Paper
Authors / Editors
Agarwal V; Naik N Y
Biographies
Publication Year
2001
Abstract
Using a new database of hedge funds, this paper provides a comprehensive analysis of the risk-return characteristics, risk exposures, style analysis and performance persistence of various hedge fund strategies. We conduct a mean-variance analysis to find that a combination of alternative investments and passive indexing provides significantly better risk-return trade off than passively investing in the different asset classes. Using abroad asset class factor model, we find that the hedge fund strategies outperform the benchmark by a range of 6% to 15% per year. We infer the significant risk exposures of different hedge fund strategies using generalized style analysis and find results consistent with their investment objectives. Finally, using parametric and non-parametric methods, we examine persistence in the performance of hedge fund managers. We find a reasonable degree of persistence which seems to be attributable more to the losers continuing to be losers instead of winners continuing to be winners.
Publication Research Centre
Hedge Fund Centre
Series Number
HF-001
Series
Centre for Hedge Fund Research and Education Working Paper