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Hedge Funds: Risk and Return

Author

Listed:
  • Burton G. Malkiel

    (Princeton University)

  • Atanu Saha

    (Analysis Group)

Abstract

Constructing a data base that is relatively free of bias, this paper provides measures of the returns of hedge fund s as well as the distinctly non-normal characteristics of the data. We provide risk-adjusted measures of performance as well as tests of the degree to which hedge funds live up to their claim of market neutrality. We also examine the substantial attrition of hedge funds and analyze the determinants of hedge fund survival as well as perform tests of return persistence. Finally, we examine the claims of the managers of funds of funds that they can form portfolios of the best hedge funds and that such funds provide useful instruments for individual investors. We conclude that hedge funds are far riskier and provide much lower returns than is commonly supposed.

Suggested Citation

  • Burton G. Malkiel & Atanu Saha, 2004. "Hedge Funds: Risk and Return," Working Papers 98, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:104
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Duarte, Jefferson & Longstaff, Francis A. & Yu, Fan, 2005. "Risk and Return in Fixed Income Arbitage: Nickels in Front of a Steamroller?," University of California at Los Angeles, Anderson Graduate School of Management qt6zx6m7fp, Anderson Graduate School of Management, UCLA.
    2. Willi Semmler & Raphaele Chappe, 2012. "Ponzi Finance And The Hedge Fund Industry," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 15(supp0), pages 1-25.
    3. Henn Overbeck, Jacqueline & Meier, Iwan, 2005. "Performance Analysis of Hedge Fonds," Working papers 2005/06, Faculty of Business and Economics - University of Basel.
    4. Willi Semmler & Raphaële Chappe, 2011. "The Operation of Hedge Funds: Econometric Evidence, Dynamic Modeling, and Regulatory Perspectives," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, chapter 1, pages 3-34, Palgrave Macmillan.

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    More about this item

    Keywords

    hedge funds;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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