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Beyond mean–variance: assessing hedge fund performance in a non-parametric world

Author

Listed:
  • Afrae Hassouni

    (Université Libre de Bruxelles (ULB), SBS-EM)

  • Hugues Pirotte

    (Université Libre de Bruxelles (ULB), SBS-EM)

Abstract

This paper uses Data Envelopment Analysis (DEA) to compare the performance of hedge funds to that of equities. The analysis covers the period from January 1999 to December 2013 and shows that under a mean–variance DEA, hedge funds significantly outperform equities. However, this outperformance is no longer significant when skewness and kurtosis are integrated. The DEA technique is particularly interesting for assessing hedge fund performance because of its flexibility and its non-parametric property: DEA allows to easily add additional attributes to the analysis and assesses performance relative to the sample under analysis without requiring any benchmark.

Suggested Citation

  • Afrae Hassouni & Hugues Pirotte, 2022. "Beyond mean–variance: assessing hedge fund performance in a non-parametric world," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(4), pages 473-488, December.
    • Handle: RePEc:kap:fmktpm:v:36:y:2022:i:4:d:10.1007_s11408-022-00409-8
    DOI: 10.1007/s11408-022-00409-8
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    References listed on IDEAS

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    Cited by:

    1. Jin Yuan & Xianghui Yuan, 2023. "A Comprehensive Method for Ranking Mutual Fund Performance," SAGE Open, , vol. 13(2), pages 21582440231, May.

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    More about this item

    Keywords

    Hedge funds; Directional DEA; Performance; Non-parametric efficient frontier;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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