scholarly journals Hedge Fund Performance Using Scaled Sharpe And Treynor Measures

2014 ◽  
Vol 13 (6) ◽  
pp. 1261
Author(s):  
Francois Van Dyk ◽  
Gary Van Vuuren ◽  
Andre Heymans
Keyword(s):  
Hedge Funds ◽  
Performance Metrics ◽  
Estimation Error ◽  
Investment Decision ◽  
Hedge Fund ◽  
Fund Performance ◽  
Performance Measure ◽  
Sharpe Ratio ◽  
Investment Funds ◽  
Additional Information

The Sharpe ratio is widely used as a performance measure for traditional (i.e., long only) investment funds, but because it is based on mean-variance theory, it only considers the first two moments of a return distribution. It is, therefore, not suited for evaluating funds characterised by complex, asymmetric, highly-skewed return distributions such as hedge funds. It is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for new and additional fund performance metrics. The monthly returns of 184 international long/short (equity) hedge funds from four geographical investment mandates were examined over an 11-year period.This study contributes to recent research on alternative performance measures to the Sharpe ratio and specifically assesses whether a scaled-version of the classic Sharpe ratio should augment the use of the Sharpe ratio when evaluating hedge fund risk and in the investment decision-making process. A scaled Treynor ratio is also compared to the traditional Treynor ratio. The classic and scaled versions of the Sharpe and Treynor ratios were estimated on a 36-month rolling basis to ascertain whether the scaled ratios do indeed provide useful additional information to investors to that provided solely by the classic, non-scaled ratios.

scholarly journals The Bias Ratio As A Hedge Fund Fraud Indicator: An Empirical Performance Study Under Different Economic Conditions

2014 ◽  
Vol 13 (4) ◽  
pp. 867 ◽  
Author(s):  
Francois Van Dyk ◽  
Gary Van Vuuren ◽  
Andre Heymans
Keyword(s):  
Hedge Funds ◽  
Performance Metrics ◽  
Estimation Error ◽  
Investment Decision ◽  
Hedge Fund ◽  
Sharpe Ratio ◽  
Performance Study ◽  
Additional Information ◽  
Bias Ratio ◽  
Sharpe Ratios

The Sharpe ratio is widely used as a performance evaluation measure for traditional (i.e., long only) investment funds as well as less-conventional funds such as hedge funds. Based on mean-variance theory, the Sharpe ratio only considers the first two moments of return distributions, so hedge funds characterised by complex, asymmetric, highly-skewed returns with non-negligible higher moments may be misdiagnosed in terms of performance. The Sharpe ratio is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for augmented measures, or, in some cases, replacement fund performance metrics. Over the period January 2000 to December 2011 the monthly returns of 184 international long/short (equity) hedge funds with investment mandates that span the geographical areas of North America, Europe, and Asia were examined. This study compares results obtained using the Sharpe ratio (in which returns are assumed to be serially uncorrelated) with those obtained using a technique which does account for serial return correlation. Standard techniques for annualising Sharpe ratios, based on monthly estimators, do not account for serial return correlation this study compares Sharpe ratio results obtained using a technique which accounts for serial return correlation. In addition, this study assess whether the Bias ratio supplements the Sharpe ratio in the evaluation of hedge fund risk and thus in the investment decision-making process. The Bias and Sharpe ratios were estimated on a rolling basis to ascertain whether the Bias ratio does indeed provide useful additional information to investors to that provided solely by the Sharpe ratio.

scholarly journals Hedge Fund Performance Evaluation Using The Sharpe And Omega Ratios

2014 ◽  
Vol 13 (3) ◽  
pp. 485 ◽  
Author(s):  
Francois Van Dyk ◽  
Gary Van Vuuren ◽  
Andre Heymans
Keyword(s):  
Performance Evaluation ◽  
Hedge Funds ◽  
Performance Metrics ◽  
Estimation Error ◽  
Investment Decision ◽  
Hedge Fund ◽  
Fund Performance ◽  
Sharpe Ratio ◽  
Sharpe Ratios ◽  
Omega Ratio

The Sharpe ratio is widely used as a performance evaluation measure for traditional (i.e., long only) investment funds as well as less-conventional funds such as hedge funds. Based on mean-variance theory, the Sharpe ratio only considers the first two moments of return distributions, so hedge funds characterised by asymmetric, highly-skewed returns with non-negligible higher moments may be misdiagnosed in terms of performance. The Sharpe ratio is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for augmented measures, or, in some cases, replacement fund performance metrics. Over the period January 2000 to December 2011 the monthly returns of 184 international long/short (equity) hedge funds with geographical investment mandates spanning North America, Europe, and Asia were examined. This study compares results obtained using the Sharpe ratio (in which returns are assumed to be serially uncorrelated) with those obtained using a technique which does account for serial return correlation. Standard techniques for annualising Sharpe ratios, based on monthly estimators, do not account for this effect. In addition, this study assesses whether the Omega ratio supplements the Sharpe Ratio in the evaluation of hedge fund risk and thus in the investment decision-making process. The Omega and Sharpe ratios were estimated on a rolling basis to ascertain whether the Omega ratio does indeed provide useful additional information to investors to that provided by the Sharpe ratio alone.

scholarly journals New Evidence On Hedge Fund Performance Measures

2011 ◽  
Vol 8 (11) ◽  
Author(s):  
Komlan Sedzro
Keyword(s):  
Data Envelopment Analysis ◽  
Performance Measures ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Fund Performance ◽  
Sharpe Ratio ◽  
Data Envelopment ◽  
Sharpe Ratios ◽  
Hedge Fund Performance ◽  
New Evidence

Hedge funds are still relatively unfamiliar to most investors despite the intense popularity they have enjoyed in recent years. Measuring the performance of these financial instruments using traditional methods is, however, problematic, since their returns do not follow a normal distribution. In this study, we consider rankings obtained with the Stochastic Dominance (SD) method and compare them with ranks produced using Sharpe Ratios, Modified Sharpe Ratios, and Data Envelopment Analysis. We also explore the advantages highlighted by the literature of the Data Envelopment Analysis (DEA) method in relation to traditional measures like Sharpe ratio and Modified Sharpe ratio. Our results show that classic performance measures are better correlated with SD than DEA results.

Financial Industry Affiliation and Hedge Fund Performance

2021 ◽  
Author(s):  
Lingling Zheng ◽  
Xuemin (Sterling) Yan
Keyword(s):  
Initial Public Offerings ◽  
Hedge Funds ◽  
Negative Impact ◽  
Hedge Fund ◽  
Seasoned Equity Offerings ◽  
Fund Performance ◽  
Financial Industry ◽  
Internal Conflicts ◽  
Industry Affiliation ◽  
Hedge Fund Performance

Affiliation with a financial conglomerate may provide hedge funds with superior information about the conglomerate’s lending, investment banking, and brokerage clients; such affiliation can also lead to potential conflicts with the other units of the conglomerate and exacerbate the conflict between hedge fund companies and hedge fund investors. We find that affiliated funds significantly underperform unaffiliated funds. A difference-in-difference analysis confirms the negative relation between financial industry affiliation and hedge fund performance. Affiliated funds pursue asset-gathering strategies, overweight their conducted initial public offerings/seasoned equity offerings clients’ stocks, are more likely to commit legal and regulatory violations, and tend to exhibit a greater number of internal conflicts. Our results are consistent with conflict of interest exerting a negative impact on the performance of affiliated hedge funds. However, it is possible that lack of skill also contributes to the underperformance of affiliated funds. This paper was accepted by Karl Diether, finance.

Style and Skill: Hedge Funds, Mutual Funds, and Momentum

2020 ◽  
Vol 66 (12) ◽  
pp. 5505-5531 ◽  
Author(s):  
Mark Grinblatt ◽  
Gergana Jostova ◽  
Lubomir Petrasek ◽  
Alexander Philipov
Keyword(s):  
Mutual Funds ◽  
Hedge Funds ◽  
Mutual Fund ◽  
Hedge Fund ◽  
Fund Performance ◽  
Short Sales ◽  
Fund Managers ◽  
Liquidity Provision ◽  
Stock Picking ◽  
Hedge Fund Performance

Classifying mandatory 13F stockholding filings by manager type reveals that hedge fund strategies are mostly contrarian, and mutual fund strategies are largely trend following. The only institutional performers—the two thirds of hedge fund managers that are contrarian—earn alpha of 2.4% per year. Contrarian hedge fund managers tend to trade profitably with all other manager types, especially when purchasing stocks from momentum-oriented hedge and mutual fund managers. Superior contrarian hedge fund performance exhibits persistence and stems from stock-picking ability rather than liquidity provision. Aggregate short sales further support these conclusions about the style and skill of various fund manager types. This paper was accepted by Tyler Shumway, finance.

scholarly journals Home Bias and Local Contagion: Evidence from Funds of Hedge Funds

2019 ◽  
Vol 33 (10) ◽  
pp. 4771-4810 ◽  
Author(s):  
Clemens Sialm ◽  
Zheng Sun ◽  
Lu Zheng
Keyword(s):  
Market Segmentation ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Home Bias ◽  
Fund Performance ◽  
Superior Performance ◽  
Local Bias ◽  
Funds Of Hedge Funds ◽  
Hedge Fund Performance ◽  
Funds Of Funds

Abstract Our paper analyzes the geographical preferences of hedge fund investors and the implication of these preferences for hedge fund performance. We find that funds of hedge funds overweigh their investments in hedge funds located in the same geographical areas and that funds with a stronger local bias exhibit superior performance. Local bias also gives rise to excess flow comovement and extreme return clustering within geographic areas. Overall, our results suggest that while funds of funds benefit from local advantages, their local bias also creates market segmentation that can destabilize the underlying hedge funds.

Can Liquidity Risk Explain Diseconomies of Scale in Hedge Funds?

2017 ◽  
Vol 07 (02) ◽  
pp. 1750002
Author(s):  
Hany A. Shawky ◽  
Ying Wang
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Liquidity Risk ◽  
Fund Performance ◽  
Diseconomies Of Scale ◽  
Liquidity Crises ◽  
Using Data ◽  
Asset Size ◽  
Hedge Fund Performance

Using data from the Lipper TASS hedge fund database over the period 1994–2012, we examine the role of liquidity risk in explaining the relation between asset size and hedge fund performance. While a significant negative size-performance relation exists for all hedge funds, once we stratify our sample by liquidity risk, we find that such a relationship only exists among funds with the highest liquidity risk. Liquidity risk is found to be another important source of diseconomies of scale in the hedge fund industry. Evidently, for high liquidity risk funds, large funds are less able to recover from the relatively more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small funds.

8 Investor Protection Concerns in Private Investment Funds

2018 ◽  
Author(s):  
Spangler Timothy
Keyword(s):  
Hedge Funds ◽  
Private Equity ◽  
Business Models ◽  
Conflicts Of Interest ◽  
Investor Protection ◽  
Hedge Fund ◽  
Private Investment ◽  
Investment Funds ◽  
Equity Funds ◽  
Private Equity Funds

This chapter examines the governance challenge in private investment funds arising from investor protection failures. It begins with a discussion of the Madoff affair, which brought to the fore alleged failures in reporting, oversight and governance mechanisms regarding private investment funds, whether hedge funds, private equity funds, real estate opportunities funds or other more esoteric investment pools. It then considers some issues which the Madoff debacle drew attention to, including the presence of multiple fund vehicles in the same structure or in interconnected structures such as parallel funds, master-feeder, and fund of funds. It also analyses the Financial Conduct Authority’s (FCA) concerns about hedge fund fraud and conflicts of interest that may arise in the business models of any of the participants in the private equity market. Finally, it describes ongoing diligence and oversight regarding private investment funds and the Securities and Exchange Commission’s (SEC) concerns over due diligence involving private funds.

Hedge Fund Regulation

2017 ◽  
Author(s):  
Wulf A. Kaal ◽  
Dale A. Oesterle
Keyword(s):  
United States ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Private Investment ◽  
The United States ◽  
Regulatory Framework ◽  
Securities Regulation ◽  
Investment Fund ◽  
Investment Funds ◽  
Fund Industry

The hedge fund industry in the United States has evolved from a niche market participant in the early 1950s to a major industry operating in international financial markets today. Hedge funds in the United States began as privately held and privately managed investment funds, unregistered and exempt from federal securities regulation. An increasing investor demand for hedge funds and substantial growth of the hedge fund industry resulted in a tectonic shift in the regulatory framework applicable to the industry via the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act. This chapter summarizes the evolution of the regulatory framework governing the hedge fund industry. It focuses on the registration and disclosure provisions added by the Dodd-Frank Act and several other regulatory innovations, including the Jumpstart Our Business Startups (JOBS) Act and proposals for tax reform of the private investment fund industry.

Hedge Funds and Limited Partnership Agreements

2021 ◽  
pp. 86-110
Author(s):  
Na Dai
Keyword(s):  
Financial Crisis ◽  
Current Literature ◽  
Risk Taking ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Fund Performance ◽  
2008 Financial Crisis ◽  
Limited Partnership ◽  
Fund Managers ◽  
The 2008 Financial Crisis

Due to the lack of regulations in the hedge fund industry and the great discretion given to hedge fund managers during the daily operations, limited partnership agreements are the most important if not the only tool for investors to incentivize and monitor hedge fund managers and protect their own interests. This chapter reviews the current literature on hedge funds contractual terms and their implications for fund performance and risk taking, before discussing the variation of the contracts conditional on the jurisdiction of the hedge fund. Finally, the development of hedge funds limited partnership agreements is investigated as many jurisdictions have imposed new regulations on hedge funds after the 2008 financial crisis.

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