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An Analysis of Hedge Fund Performance

Author

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  • Daniel Capocci

    (University of Li├Ęge Belgium)

Abstract

Using one of the greatest hedge fund database ever used (2796 hedge funds including 801 dissolved), we investigate hedge funds performance using various asset-pricing models, including an extension form of Carhart's (1997) model combined with Fama & French (1998) Agarwal & Naik (2000) models and a new factor that take into account the fact that some hedge funds invest in emerging market bond. We find out that our combined model is able to explain a significant proportion of the variation in hedge fund returns over time. This latter particularly suits for Event-Driven, Global Macro, US Opportunistics, Equity non- Hedge and Sector funds. We analyse the performance of ehdge funds and the persistence in performance for different subperiods including the Asian Crisis period. Then, after having studied dissolutionfrequencies, we made the same calculations for several individual hedge fund strategies. We showed there is a proof of persistence in performance in some cases but that persistence is not always constant over time.

Suggested Citation

  • Daniel Capocci, 2002. "An Analysis of Hedge Fund Performance," Finance 0210001, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0210001
    Note: Type of Document - pdf file; prepared on PC; to print on deskjet 695; pages: 48; figures: included. No
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    File URL: http://econwpa.repec.org/eps/fin/papers/0210/0210001.pdf
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    Keywords

    Hedge Funds; Performance; Persistence; Carhart; Fama and Ffrench; CAPM; Dissolution frequencies; Survivorship Bias; Correlation; History Bias; Total Returns;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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