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Assessing Hedge Fund Performance: Does the Choice of Measures Matter?

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Author Info
Huyen Nguyen-Thi-Thanh () (Groupe Sup de Co La Rochelle - CEREGE - Groupe Sup de Co La Rochelle - CEREGE, LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
Abstract

In this paper, we conducted a comparative study of ten measures documented as the most used by researchers and practionners: Sharpe, Sortino, Calmar, Sterling, Burke, modified Stutzer, modified Sharpe, upside potential ratio, Omega and AIRAP. This study was carried out in two stages on a sample of 149 hedge funds. First, we examined the modifications of funds' relative performance in terms of ranks and deciles when the performance measure changes. Despite strong positive correlations between funds' rankings established by different measures, numerous significant modifications were observed. Second, we studied the stability/persistence of the ten measures in question. Our results show that some measures are more stable or persistent than the others in measuring hedge fund performance.

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Paper provided by HAL in its series Working Papers with number halshs-00184814_v1.

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Date of creation: Oct 2007
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Handle: RePEc:hal:wpaper:halshs-00184814_v1

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Related research
Keywords: hedge funds; performance evaluation; performance measure; Sharpe ratio;

References listed on IDEAS
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  1. Malkiel, Burton G, 1995. " Returns from Investing in Equity Mutual Funds 1971 to 1991," Journal of Finance, American Finance Association, vol. 50(2), pages 549-72, June. [Downloadable!] (restricted)
  2. Daniel Capocci & Albert Corhay & Georges Hübner, 2005. "Hedge fund performance and persistence in bull and bear markets," European Journal of Finance, Taylor and Francis Journals, vol. 11(5), pages 361-392, October. [Downloadable!] (restricted)
  3. Brown, Stephen J & Goetzmann, William N & Ibbotson, Roger G, 1999. "Offshore Hedge Funds: Survival and Performance, 1989-95," Journal of Business, University of Chicago Press, vol. 72(1), pages 91-117, January. [Downloadable!] (restricted)
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  4. Baquero, Guillermo & ter Horst, Jenke & Verbeek, Marno, 2005. "Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(03), pages 493-517, September. [Downloadable!]
  5. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-98, June. [Downloadable!] (restricted)
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  6. Capocci, Daniel & Hubner, Georges, 2004. "Analysis of hedge fund performance," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 55-89, January. [Downloadable!] (restricted)
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