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Further Evidence on Hedge Funds Performance

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  • Christiansen, Claus Bang

    (Department of Finance, Aarhus School of Business)

  • Madsen, Peter Brink

    (Department of Finance, Aarhus School of Business)

  • Christensen, Michael

    () (Department of Finance, Aarhus School of Business)

Abstract

In this analysis we identify dynamic hedge fund strategies quantitatively pursuing a Principal Component Analysis following Fung and Hsieh (1997). We extract five dominant hedge fund strategies each representing similar investment styles and analyse the performance of each strategy by employing a multi-factor model comprising both market indices and passive option strategies along the lines of Agerwal and Naik (2000). We find that the majority of the five homogenous strategies show superior performance. However, correcting for survivorship bias this superior performance disappears.

Suggested Citation

  • Christiansen, Claus Bang & Madsen, Peter Brink & Christensen, Michael, 2003. "Further Evidence on Hedge Funds Performance," Finance Working Papers 03-5, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  • Handle: RePEc:hhb:aarfin:2003_005
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    References listed on IDEAS

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    1. Mark Mitchell, 2001. "Characteristics of Risk and Return in Risk Arbitrage," Journal of Finance, American Finance Association, vol. 56(6), pages 2135-2175, December.
    2. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-533, October.
    3. Daniel Capocci, 2002. "An Analysis of Hedge Fund Performance," Finance 0210001, EconWPA.
    4. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September.
    5. Dybvig, Philip H & Ross, Stephen A, 1985. " Differential Information and Performance Measurement Using a Security Market Line," Journal of Finance, American Finance Association, vol. 40(2), pages 383-399, June.
    6. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, June.
    7. Merton, Robert C, 1981. "On Market Timing and Investment Performance. I. An Equilibrium Theory of Value for Market Forecasts," The Journal of Business, University of Chicago Press, vol. 54(3), pages 363-406, July.
    8. Capocci, Daniel & Hubner, Georges, 2004. "Analysis of hedge fund performance," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 55-89, January.
    9. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    10. 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, vol. 10(2), pages 275-302.
    11. Liang, Bing, 2000. "Hedge Funds: The Living and the Dead," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 309-326, September.
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    Keywords

    Hedge funds; Investment in securities; Performance; Dynamic strategies; Hedge funds performance;

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