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Empirische Analyse der Drawdowns von Dach-Hedgefonds

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Author Info

  • Heidorn, Thomas
  • Kaiser, Dieter G.
  • Roder, Christoph

Abstract

Funds of Hedge Funds (FHF) are perceived to be the premier choice of institutional investors for first-time allocations into the alternative investment asset class. While many papers cover the bright side of FHF investing, we in this paper empirically investigate the maximum drawdowns of FHF. Therefore, we analyze time series and descriptive variables of 649 FHF drawn from the Lipper TASS Hedge Fund database for the time period January 1996 to August 2007. Our empirical results suggest that (1) the number as well as the magnitude of drawdowns decreases with increasing experience of the FHF, (2) the average recovery is higher with older FHF, (3) there is no difference in the magnitude of a maximum drawdown between small and large FHF, (4) the higher a maximum drawdown of an FHF the longer it takes to recover, and (5) most of the maximum drawdowns happen at times of turmoil in financial markets. Therefore our findings especially question the acclaimed ability of FHF to deliver absolute returns and also show that the beta risks involved with FHF are high. The advantages of FHF should thus rather be their low long-term correlations to traditional asset classes as well as their low volatility. --

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Bibliographic Info

Paper provided by Frankfurt School of Finance and Management in its series Frankfurt School - Working Paper Series with number 109.

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Date of creation: 2009
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Handle: RePEc:zbw:fsfmwp:109

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Keywords: Funds of hedge funds; size; age; experience; assets under management; maximum drawdown; recovery time;

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References

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  1. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
  2. Brown, Stephen J & Goetzmann, William N & Ibbotson, Roger G, 1999. "Offshore Hedge Funds: Survival and Performance, 1989-95," The Journal of Business, University of Chicago Press, vol. 72(1), pages 91-117, January.
  3. Stephen J. Brown & William N. Goetzmann & Bing Liang, 2004. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers ysm18, Yale School of Management.
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Cited by:
  1. Heidorn, Thomas & Winker, Michael & Löw, Christian, 2010. "Funktionsweise und Replikationstil europäischer Exchange Traded Funds auf Aktienindices," Frankfurt School - Working Paper Series 139, Frankfurt School of Finance and Management.
  2. Kostka, Genia & Zhou, Jianghua, 2010. "Chinese firms entering China's low-income market: Gaining competitive advantage by partnering governments," Frankfurt School - Working Paper Series 147, Frankfurt School of Finance and Management.
  3. Herrmann-Pillath, Carsten, 2010. "The evolutionary approach to entropy: Reconciling Georgescu-Roegen's natural philosophy with the maximum entropy framework," Frankfurt School - Working Paper Series 140, Frankfurt School of Finance and Management.
  4. Heidorn, Thomas & Kaiser, Dieter G. & Voinea, Andre, 2010. "The value-added of investable hedge fund indices," Frankfurt School - Working Paper Series 141, Frankfurt School of Finance and Management.
  5. Herrmann-Pillath, Carsten, 2009. "Social capital, Chinese style: individualism, relational collectivism and the cultural embeddedness of the institutions-performance link," Frankfurt School - Working Paper Series 132, Frankfurt School of Finance and Management.
  6. Heidorn, Thomas & Kahlert, Dennis, 2010. "Implied correlations of iTraxx tranches during the financial crisis," Frankfurt School - Working Paper Series 145, Frankfurt School of Finance and Management.
  7. Herrmann-Pillath, Carsten, 2010. "Rethinking evolution, entropy and economics: A triadic conceptual framework for the maximum entropy principle as applied to the growth of knowledge," Frankfurt School - Working Paper Series 146, Frankfurt School of Finance and Management.
  8. Heidorn, Thomas & Schmaltz, Christian, 2009. "Interne Transferpreise für Liquidität," Frankfurt School - Working Paper Series 125, Frankfurt School of Finance and Management.
  9. Schäffler, Christian & Schmaltz, Christian, 2009. "Market liquidity: an introduction for practitioners," Frankfurt School - Working Paper Series 131, Frankfurt School of Finance and Management.

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