Advanced Search
MyIDEAS: Login to save this paper or follow this series

Hedge funds for retail investors? An examination of hedged mutual funds

Contents:

Author Info

  • Agarwal, Vikas
  • Boyson, Nicole M.
  • Naik, Narayan Y.
Registered author(s):

    Abstract

    Recently there has been a rapid growth in the assets managed by hedged mutual funds - mutual funds mimicking hedge funds strategies. In this paper, we examine the performance of these funds relative to hedge funds and traditional mutual funds. We find that despite their use of similar trading strategies, hedged mutual funds underperform hedge funds. We attribute this evidence to lighter regulation and better incentives faced by hedge funds. In contrast, hedged mutual funds outperform traditional mutual funds. Most interesting, this superior performance is largely driven by managers with experience in implementing hedge fund strategies. Our findings have important implication for investors seeking hedgefund-like payoffs at a lower cost and within the comfort of a regulated environment. --

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://econstor.eu/bitstream/10419/57734/1/703000403.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 07-04.

    as in new window
    Length:
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:zbw:cfrwps:0704

    Contact details of provider:
    Postal: Albertus Magnus Platz, 50923 Köln
    Phone: 0221 / 470 5607
    Fax: 0221 / 470 5179
    Email:
    Web page: http://cfr-cologne.de/english/version06/html/home.php
    More information through EDIRC

    Related research

    Keywords: Hedge funds; mutual funds; hedged mutual funds; hybrid mutual funds;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. William Goetzmann & Jonathan Ingersoll & Stephen Ross, 1998. "High-Water Marks and Hedge Fund Management Contracts," Yale School of Management Working Papers, Yale School of Management ysm81, Yale School of Management, revised 01 Aug 2001.
    2. Judith Chevalier & Glenn Ellison, 1998. "Career Concerns of Mutual Fund Managers," NBER Working Papers 6394, National Bureau of Economic Research, Inc.
    3. José-Miguel Gaspar & Massimo Massa & Pedro Matos, 2006. "Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization," Journal of Finance, American Finance Association, American Finance Association, vol. 61(1), pages 73-104, 02.
    4. Liang, Bing, 2000. "Hedge Funds: The Living and the Dead," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(03), pages 309-326, September.
    5. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
    6. Jennifer Carpenter & Anthony Lynch, 1998. "Survivorship Bias and Attrition Effects in Measures of Performance Persistence," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 98-077, New York University, Leonard N. Stern School of Business-.
    7. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
    8. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, American Finance Association, vol. 55(4), pages 1655-1703, 08.
    9. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    10. Stephen Brown, 1999. "Conditions for Survival: Changing Risk and the Performance of Hedge Fund Managers and CTAs," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 99-077, New York University, Leonard N. Stern School of Business-.
    11. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, American Finance Association, vol. 54(3), pages 833-874, 06.
    12. Luboš Pástor & Robert F. Stambaugh, . "Mutual Fund Performance and Seemingly Unrelated Assets.”," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 527, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    13. Mark Mitchell, 2001. "Characteristics of Risk and Return in Risk Arbitrage," Journal of Finance, American Finance Association, American Finance Association, vol. 56(6), pages 2135-2175, December.
    14. Edwin J. Elton & Martin J. Gruber & Christopher R. Blake, 2003. "Incentive Fees and Mutual Funds," Journal of Finance, American Finance Association, American Finance Association, vol. 58(2), pages 779-804, 04.
    15. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "Survivorship Bias and Mutual Fund Performance," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(4), pages 1097-1120.
    16. Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 85-110, March.
    17. Luboš Pástor & Robert F. Stambaugh, . "Liquidity Risk and Expected Stock Returns," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 531, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    18. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, American Finance Association, vol. 50(2), pages 679-98, June.
    19. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 65-91, March.
    20. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(1), pages 3-56, February.
    21. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2008. "Unobserved Actions of Mutual Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(6), pages 2379-2416, November.
    22. Mary Margaret Myers & James M. Poterba & Douglas A. Shackelford, 2001. "Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry," NBER Working Papers 8653, National Bureau of Economic Research, Inc.
    23. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(2), pages 288-307, April.
    24. Deli, Daniel N. & Varma, Raj, 2002. "Contracting in the investment management industry: *1: evidence from mutual funds," Journal of Financial Economics, Elsevier, Elsevier, vol. 63(1), pages 79-98, January.
    25. Michael J. Cooper & Huseyin Gulen & P. Raghavendra Rau, 2005. "Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 60(6), pages 2825-2858, December.
    26. Stephen J. Brown & William N. Goetzmann & Bing Liang, 2004. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers, Yale School of Management ysm18, Yale School of Management.
    27. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
    28. Mila Getmansky & Andrew W. Lo & Igor Makarov, 2003. "An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns," NBER Working Papers 9571, National Bureau of Economic Research, Inc.
    29. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-41.
    30. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
    31. Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
    32. Almazan, Andres & Brown, Keith C. & Carlson, Murray & Chapman, David A., 2004. "Why constrain your mutual fund manager?," Journal of Financial Economics, Elsevier, Elsevier, vol. 73(2), pages 289-321, August.
    33. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, American Finance Association, vol. 51(2), pages 425-61, June.
    34. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 69(2), pages 133-57, April.
    35. Jennifer Lynch Koski & Jeffrey Pontiff, 1999. "How Are Derivatives Used? Evidence from the Mutual Fund Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 54(2), pages 791-816, 04.
    36. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 53(5), pages 1589-1622, October.
    37. Davies, Ryan J. & Kim, Sang Soo, 2009. "Using matched samples to test for differences in trade execution costs," Journal of Financial Markets, Elsevier, Elsevier, vol. 12(2), pages 173-202, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:zbw:cfrwps:0704. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.