✦ LIBER ✦

Hedge Fund Performance and Manager Skill

✍ Scribed by Franklin R. Edwards; Mustafa Onur Caglayan

Publisher: John Wiley and Sons
Year: 2001
Tongue: English
Weight: 151 KB
Volume: 21
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.2102

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

Using data on the monthly returns of hedge funds during the period January 1990 to August 1998, we estimate
six‐factor Jensen alphas for individual hedge funds, employing eight different investment styles. We find
that about 25% of the hedge funds earn positive excess returns and that the frequency and magnitude of
funds' excess returns differ markedly with investment style. Using six‐factor alphas as a measure of
performance, we also analyze performance persistence over 1‐year and 2‐year horizons and find
evidence of significant persistence among both winners and losers. These findings, together with our finding
that hedge funds that pay managers higher incentive fees also have higher excess returns, are consistent with
the view that fund manager skill may be a partial explanation for the positive excess returns earned by hedge
funds. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1003–1028, 2001

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