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The Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds
[Large sample properties of matching estimators for average treatment effects]

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  • Juha Joenväärä
  • Robert Kosowski

Abstract

This article examines the effect of regulatory constraints on fund performance and risk by comparing conventional and UCITS hedge funds. Using a matching estimator approach, we estimate the indirect cost of UCITS regulation to be between 1.06% and 4.05% per annum in terms of risk-adjusted returns. These performance differences are likely to stem from UCITS constraints such as those governing eligible assets, diversification, and short selling, and cannot be explained by differences in redemption terms or level of leverage. We confirm that our performance results are not driven by management company characteristics, fund manager characteristics, or unobserved confounder bias.

Suggested Citation

  • Juha Joenväärä & Robert Kosowski, 2021. "The Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds [Large sample properties of matching estimators for average treatment effects]," Review of Finance, European Finance Association, vol. 25(1), pages 189-233.
    • Handle: RePEc:oup:revfin:v:25:y:2021:i:1:p:189-233.
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    File URL: http://hdl.handle.net/10.1093/rof/rfaa017
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    Cited by:

    1. Yang, Fan & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2024. "Where Have All the Alphas Gone? A Meta-Analysis of Hedge Fund Performance," EconStor Preprints 289497, ZBW - Leibniz Information Centre for Economics.
    2. Yang, Fan & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2022. "Hedge Fund Performance: A Quantitative Survey," EconStor Preprints 260612, ZBW - Leibniz Information Centre for Economics.
    3. Marohn, Marcel & Auer, Benjamin R., 2024. "A note on Steuer and Utz’s (2023) multi-objective optimization approach for generating sustainability-efficient fronts," European Journal of Operational Research, Elsevier, vol. 316(2), pages 792-797.

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    More about this item

    Keywords

    Hedge fund performance; Mutual fund performance; Managerial skill; Regulation; Constraints;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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