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The Performance of Hedge Fund Strategies and the Asymmetry of Return Distributions
Author(s) -
Ding Bill,
Shawky Hany A.
Publication year - 2007
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2006.00356.x
Subject(s) - hedge fund , skewness , econometrics , economics , performance fee , contrast (vision) , index (typography) , alternative beta , returns based style analysis , financial economics , open end fund , fund of funds , monetary economics , institutional investor , fund administration , computer science , finance , artificial intelligence , world wide web , market liquidity , corporate governance
We present hedge fund performance estimates that adjust for stale prices, Fama‐French risk factors and skewness. We contrast these new performance estimates with traditional performance measures. Using three‐factor models to adjust for staleness in prices and to incorporate Fama‐French factors along with the Harvey‐Siddique (2000) two‐factor model that incorporates skewness, we find that for the period 1990–2003, all hedge fund categories achieve above average performance when measured against an aggregate market index. More significantly, however, when we estimate performance at the individual hedge fund level, we discover that only 40 to 47% of the funds are shown to achieve an above average performance over that time period depending on the model used. These results have important implications for investors, endowments and pensions when they choose hedge fund managers.