IDEAS home Printed from
   My bibliography  Save this paper

Empirische Analyse der Drawdowns von Dach-Hedgefonds


  • Heidorn, Thomas
  • Kaiser, Dieter G.
  • Roder, Christoph


Funds of Hedge Funds (FHF) are perceived to be the premier choice of institutional investors for first-time allocations into the alternative investment asset class. While many papers cover the bright side of FHF investing, we in this paper empirically investigate the maximum drawdowns of FHF. Therefore, we analyze time series and descriptive variables of 649 FHF drawn from the Lipper TASS Hedge Fund database for the time period January 1996 to August 2007. Our empirical results suggest that (1) the number as well as the magnitude of drawdowns decreases with increasing experience of the FHF, (2) the average recovery is higher with older FHF, (3) there is no difference in the magnitude of a maximum drawdown between small and large FHF, (4) the higher a maximum drawdown of an FHF the longer it takes to recover, and (5) most of the maximum drawdowns happen at times of turmoil in financial markets. Therefore our findings especially question the acclaimed ability of FHF to deliver absolute returns and also show that the beta risks involved with FHF are high. The advantages of FHF should thus rather be their low long-term correlations to traditional asset classes as well as their low volatility.

Suggested Citation

  • Heidorn, Thomas & Kaiser, Dieter G. & Roder, Christoph, 2009. "Empirische Analyse der Drawdowns von Dach-Hedgefonds," Frankfurt School - Working Paper Series 109, Frankfurt School of Finance and Management.
  • Handle: RePEc:zbw:fsfmwp:109

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Brown, Stephen J & Goetzmann, William N & Ibbotson, Roger G, 1999. "Offshore Hedge Funds: Survival and Performance, 1989-95," The Journal of Business, University of Chicago Press, vol. 72(1), pages 91-117, January.
    2. Stephen J. Brown & William N. Goetzmann & Bing Liang, 2005. "Fees On Fees In Funds Of Funds," World Scientific Book Chapters,in: The World Of Hedge Funds Characteristics and Analysis, chapter 7, pages 141-160 World Scientific Publishing Co. Pte. Ltd..
    3. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Libman, Alexander, 2010. "Constitutions, regulations, and taxes: Contradictions of different aspects of decentralization," Journal of Comparative Economics, Elsevier, pages 395-418.
    2. C. Herrmann-Pillath., 2011. "A Neurolinguistic Approach to Performativity in Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    3. Herrmann-Pillath, Carsten, 2010. "Rethinking evolution, entropy and economics: A triadic conceptual framework for the maximum entropy principle as applied to the growth of knowledge," Frankfurt School - Working Paper Series 146, Frankfurt School of Finance and Management.
    4. Herrmann-Pillath, Carsten, 2011. "The evolutionary approach to entropy: Reconciling Georgescu-Roegen's natural philosophy with the maximum entropy framework," Ecological Economics, Elsevier, pages 606-616.
    5. Schäffler, Christian & Schmaltz, Christian, 2009. "Market liquidity: an introduction for practitioners," Frankfurt School - Working Paper Series 131, Frankfurt School of Finance and Management.
    6. Heidorn, Thomas & Kahlert, Dennis, 2010. "Implied correlations of iTraxx tranches during the financial crisis," Frankfurt School - Working Paper Series 145, Frankfurt School of Finance and Management.
    7. Herrmann-Pillath, Carsten, 2009. "Social capital, Chinese style: individualism, relational collectivism and the cultural embeddedness of the institutions-performance link," Frankfurt School - Working Paper Series 132, Frankfurt School of Finance and Management.
    8. Kostka, Genia & Zhou, Jianghua, 2010. "Chinese firms entering China's low-income market: Gaining competitive advantage by partnering governments," Frankfurt School - Working Paper Series 147, Frankfurt School of Finance and Management.
    9. Heidorn, Thomas & Winker, Michael & Löw, Christian, 2010. "Funktionsweise und Replikationstil europäischer Exchange Traded Funds auf Aktienindices," Frankfurt School - Working Paper Series 139, Frankfurt School of Finance and Management.

    More about this item


    Funds of hedge funds; size; age; experience; assets under management; maximum drawdown; recovery time;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:fsfmwp:109. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.