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Assessing hedge fund performance with institutional constraints: evidence from CTA funds

Author

Listed:
  • Marat Molyboga

    () (Efficient Capital Management, LLC)

  • Seungho Baek

    () (City University of New York)

  • John F. O. Bilson

    () (Illinois Institute of Technology)

Abstract

Standard tests for persistence in hedge fund performance are not consistent with investment practices because they ignore performance reporting delay, overlook fund selection standards of institutional investors, and often use portfolios with too many funds. This paper introduces a set of tests based on a large-scale simulation framework and stochastic dominance methodology. These tests incorporate constraints that are standard practice in the institutional investment field. To illustrate this framework, we apply it to investigate momentum in the performance of hedge funds of the managed futures industry. We find persistence in performance of the top performing fund managers that is significant in statistical and economic terms. Our methodology extends the toolbox of performance persistence tests and results in findings that can be implemented by institutional investors.

Suggested Citation

  • Marat Molyboga & Seungho Baek & John F. O. Bilson, 2017. "Assessing hedge fund performance with institutional constraints: evidence from CTA funds," Journal of Asset Management, Palgrave Macmillan, vol. 18(7), pages 547-565, December.
  • Handle: RePEc:pal:assmgt:v:18:y:2017:i:7:d:10.1057_s41260-017-0053-8
    DOI: 10.1057/s41260-017-0053-8
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    Cited by:

    1. Marat Molyboga & Christophe L’ Ahelec, 2016. "A simulation-based methodology for evaluating hedge fund investments," Journal of Asset Management, Palgrave Macmillan, vol. 17(6), pages 434-452, October.

    More about this item

    Keywords

    Hedge funds; Commodity Trading Advisors; Performance persistence; Institutional investment;

    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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