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Are Funds of Hedge Funds Efficient? An Empirical Analysis for North American, Asia Pacific, and European Long/Short Funds of Hedge Funds

Author

Listed:
  • Lan T.P. Nguyen

    (Multinational University, Malaysia)

  • Malick O. Sy

    (Royal Melbourne Institute of Technology (RMIT), Australia)

  • Cheng M. Yu

    (Universiti Tunku Abdul Rahman (UTAR), Malaysia)

  • Sayed Hossain

    (Cedar Valley College, USA)

  • Tan B. Chen

    (Multimedia University, Malaysia)

Abstract

This study aims to examine whether long/short funds of hedge funds truly provide better diversification benefits to hedge fund investors as compared to efficient portfolios of long/short hedge funds in North America, Europe, and Asia Pacific. Data of long/short hedge funds and long/short FOHFs are obtained from Eurekahedge databases from 1st January 2008 to 31st December 2016. Mean-variance optimization method is employed to construct efficient portfolios of 100 long/short hedge funds with highest Sharpe ratios for each of the selected regions. To ensure the robustness of our findings, two rolling windows of observation are set up for a comparative analysis. This study concludes that most of the single-region focused long/short FOHFs in the sample, did not outperform the constructed efficient portfolios of long/short hedge funds investing in the same region. In fact, many long/short FOHFs did not survive more than a period of six years as observed in this study.

Suggested Citation

  • Lan T.P. Nguyen & Malick O. Sy & Cheng M. Yu & Sayed Hossain & Tan B. Chen, 2019. "Are Funds of Hedge Funds Efficient? An Empirical Analysis for North American, Asia Pacific, and European Long/Short Funds of Hedge Funds," Multinational Finance Journal, Multinational Finance Journal, vol. 23(1-2), pages 37-64, March - J.
    • Handle: RePEc:mfj:journl:v:23:y:2019:i:1-2:p:37-64
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    References listed on IDEAS

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    More about this item

    Keywords

    funds of hedge funds; long/short strategy; diversification; efficient portfolios; mean-variance method;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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