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Performance Evaluation and Conditioning Information: The case of Hedge Funds

  • Harry. M Kat

    ()

    (ICMA Centre, University of Reading)

  • Joelle Miffre

    (EDHEC Business School (France))

In this paper we investigate whether there are any significant differences in the ability of constant and time-varying expected return asset pricing models to detect superior performance in hedge funds. Our results strongly suggest that the static models traditionally employed to measure and evaluate hedge fund performance are misspecified. Allowing for conditioning information to predict changes in the risk and performance measures of hedge funds increases the statistical significance of the performance evaluation. In addition, incorrectly assuming constant expected returns appears to lead to underestimation of the abnormal performance of hedge funds

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File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2002-10.pdf
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Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2002-10.

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Length: 28 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:rdg:icmadp:icma-dp2002-10
Contact details of provider: Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
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Web page: http://www.henley.reading.ac.uk/

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  1. Chen, Zhiwu & Knez, Peter J, 1996. "Portfolio Performance Measurement: Theory and Applications," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 511-55.
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  18. 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.
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