The Performance of Hedge Fund Strategies and the Asymmetry of Return Distributions

Abstract

"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." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Does the Measure Matter in the Mutual Fund Industry?

“…4. The CISDM database has been the subject of many academic studies (e.g., Capocci and Hübner 2004;Ding and Shawky 2007). The full database contains information on 8,542 funds.…”

Liquidity shocks, size and the relative performance of hedge fund strategies

“…Table 1 shows summary statistics of counts, average monthly return, Sharpe ratio and mean and median total assets under management for hedge funds by strategy for both live and dead funds. While incorporating skewness and coskewness in the measurement of hedge fund performance has been examined by a number of recent papers including Harvey and Siddique (2000), Lo (2002), Ding and Shawky (2007), Kat and Miffre (2007) and Eling and Schuhmacher (2007), the empirical differences between the performance estimates using a Sharpe type measure and one that adjusts for skewness is rather small. 8 For each fund, we obtain the parametric estimation of the time series single index market model and the mean of a i and b i for each strategy.…”

The value of coskewness in mutual fund performance evaluation

“…As hedge funds can employ dynamic strategies such as leverage, short selling, and investment in illiquid assets, it seems clear that return distributions will be non normal and that therefore these measures will have a significant effect (see Ranaldo and Favre, 2005;Ding and Shawky, 2007). It is less evident that these mea sures also generate changes in the performance of common mutual funds unable to use those strategies.…”