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Abstract:
Using one of the greatest hedge fund database ever used (2796 hedge funds including 801 dissolved), we investigate hedge funds performance using various asset-pricing models, including an extension form of Carhart's (1997) model combined with Fama and French (1998), Agarwal and Naik (2000) models and a new factor that take into account the fact that some hedge funds invest in emerging market bond. We find out that our combined model is able to explain a significant proportion of the variation in hedge fund returns over time. This latter particularly suits for Event-Driven, Global Macro, US Opportunistics, Equity non-Hedge and Sector funds. We analyse the performance of hedge funds and the persistence in performance for different subperiods including the Asian Crisis period. Then, after having studied dissolution frequencies, we made the same calculations for several individual hedge fund strategies. We showed there is a proof of persistence in performance in some cases but that persistence is not always constant over time.

hedge fund, hedge funds, Performance, Persistence, Carhart, Fama and French, Asian Crisis, Emerging Markets, CAPM, Dissolution frequenties, Survivorship Bias, Correlation, History Bias, Total Returns

Abstract:
This PhD thesis analyses hedge fund strategies in detail by decomposing hedge fund performance figures. Our aim is to present hedge funds, to understand what managers expect to do and to understand how they make or destroy value over time. In order to achieve this objective, we develop a multi-factor performance analysis model, use it over several time periods and improve it over time. This model aims to determine both whether hedge funds create pure alpha over time (alpha over classical markets) and whether there is persistence in hedge fund returns over time. Following this, I analyse another specific aspect of hedge funds, their neutrality relative to equity markets in order to validate hedge fund managers' claims that they are market neutral. Finally, we develop new efficient frontier measures, which not only include returns and volatility, but also skewness and kurtosis in order to determine whether hedge funds are really beneficial to investors.

hedge fund, performance, persistence, skewness, kurtosis, alpha, beta, hedge, market, market neutral

Abstract:
This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. Our database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market. We apply an original ten-factor composite performance model that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly out-performed the market during the whole test period, mostly thanks to the bullish sub-period. In contrast, no significant under-performance of individual hedge funds strategies is observed when markets headed south. The analysis of persistence yields very similar results, with most of the predictability being found among middle performers during the bullish period. However, the Market Neutral strategy represents a remarkable exception, as abnormal performance is sustained throughout and significant persistence can be found between the 20% and 69% best performers in this category, probably thanks to an extreme adaptability and a very active investment behavior.

Hedge fund, hedge funds, carhart, capocci, hubner, performance, persistence, decile analysis

Abstract:
This study analyses and decomposes hedge fund returns in order to determine a systematic hedge fund selection criterion that enables investors to consistently and significantly outperform equity and bond indices over a full market cycle and over bull and bear market conditions. The methodology used is adapted from Capocci and Hübner (2004). The measures used include the returns, volatility, Sharpe score, alpha, beta, skewness and kurtosis. Measures incorporating the volatility display very strong ability to assist investors in creating alpha as well as consistently and significantly outperforming classical indices.

Hedge fund, return, performance, persistence, sustainability, volatility Sharpe score, alpha, beta, skewness, kurtosis

Abstract:
Using an original database of 634 market neutral hedge funds, this study formally analyse the market neutrality of market neutral funds which are particular in the hedge fund universe. One of the basic objective of these funds is to provide positive returns completely independently of the market conditions. We start by analysing this neutrality using various market neutral indices before focusing on individual fund return figures using the decile classification suggested by Carhart (1997). Finally, an analysis based on ex-post beta helps us understanding our previous results. We perform this analysis over the global January 1993-December 2002 period as well as on bull and bear markets periods.

Hedge fund, hedge funds, performance, persistence, decile, return, neutrality, beta, market, index

Abstract:
Using an original database of 634 market neutral hedge funds, this study formally analyse the market neutrality of market neutral funds which are particular in the hedge fund universe. One of the basic objective of these funds is to provide positive returns completely independently of the market conditions. We start by analysing this neutrality using various market neutral indices before focusing on individual fund return figures using the decile classification suggested by Carhart (1997). Finally, an analysis based on ex-post beta helps us understanding our previous results. We perform this analysis over the global January 1993-December 2002 period as well as on bull and bear markets periods.

Hedge fund, hedge funds, performance, persistence, decile, return, neutrality, beta, market, index

Abstract:
This study analyses and decomposes hedge funds returns to detect a systematic hedge fund selection criteria that enables the investors to consistently and significantly outperform classical equities and bonds indices over a full market cycle and over bullish and bearish market periods. The methodology used is adapted from Capocci and Hübner (2004). The measures used include the returns, the volatility, the Sharpe Score, the alpha, the beta, the skewness and the kurtosis. Measures incorporating the volatility shows very strong ability to help the investors creating alpha and consistently and significantly outperform classical indices. Some test of robustness over various market cycles as well as on using various date for classifying funds confirm the strongness of the methodology.

hedge funds, funds of funds, indices, performance, persistence, comparison, correlation, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile, fama, french, carhart, CAPM, Sharpe score, skewness, kurtosis, volatility

Abstract:
This study analyses and decomposes hedge fund returns in order to determine a systematic hedge fund selection criterion that enables investors to consistently and significantly outperform equity and bond indices over a full market cycle and over bull and bear market conditions. The methodology used is adapted from Capocci and Hübner (2004). The measures used include the returns, volatility, Sharpe ratio, alpha, beta, skewness, kurtosis and an adapted Sharpe ratio. Measures incorporating the volatility display very strong ability to assist investors in creating alpha as well as consistently and significantly outperforming classical indices.

Hedge fund, return, performance, persistence, sustainability, volatility Sharpe ratio, alpha, beta, skewness, kurtosis

Abstract:
This study analyses and decomposes hedge fund returns in order to determine a systematic hedge fund selection criterion that enables investors to consistently and significantly outperform equity and bond indices over a full market cycle and over bull and bear market conditions. The methodology used is adapted from Capocci and Hübner (2004). The measures used include the returns, volatility, Sharpe ratio, alpha, beta, skewness, kurtosis and an adapted Sharpe ratio. Measures incorporating the volatility display very strong ability to assist investors in creating alpha as well as consistently and significantly outperforming classical indices.

Hedge fund, return, performance, persistence, sustainability, volatility Sharpe ratio, alpha, beta, skewness, kurtosis.

Abstract:
This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. The database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market. An original ten-factor composite performance model is applied that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly outperformed the market during the whole test period, mostly thanks to the bullish subperiod. In contrast, no significant underperformance of individual hedge funds strategies is observed when markets headed south. The analysis of persistence yields very similar results, with most of the predictability being found among middle performers during the bullish period. However, the 'Market Neutral’ strategy represents a remarkable exception, as abnormal performance is sustained throughout and significant persistence can be found between the 20% and 69% best performers in this category, probably thanks to an extreme adaptability and a very active investment behaviour.

Hedge funds, funds of funds, selection bias, abnormal returns, bullish market, bearish market, persistence

Abstract:
Using one of the biggest database ever used in commodity trading advisors (CTA) academic study containing 1892 funds (including 1350 dissolved funds), we investigate CTA performance and persistence in performance in order to determine if some CTA consistently and significantly outperform their peers over various time periods. In order to test the persistence hypothesis, we use a methodology based on Carhart's (1997) decile classification. We also empirically decompose decile's performance across the CTA strategies covered in order to determine if some deciles are more exposed to certain strategies over time. We also analyze the presence of survivorship bias and its evolution over time. We conclude the study in analyzing the dissolution frequencies across deciles and its evolution over time.

Keywords: commodity trading advisors, CTA, managed futures, futures, hedge fund, alternative investments, persistence, performance, Carhart, Capocci, Barclay Trading Group, survivorship bias, dissolution frequencies, dissolution, index

CTA, commodity trading advisors, performance, survivorship, dissolution frequencies, death rate

Abstract:
Using one of the biggest database ever used in commodity trading advisors (CTA) academic study containing 1892 funds (including 1350 dissolved funds), we investigate CTA performance and persistence in performance in order to determine if some CTA consistently and significantly outperform their peers over various time periods. In order to test the persistence hypothesis, we use a methodology based on Carhart's (1997) decile classification. We also empirically decompose decile's performance across the CTA strategies covered in order to determine if some deciles are more exposed to certain strategies over time. We also analyze the presence of survivorship bias and its evolution over time. We conclude the study in analyzing the dissolution frequencies across deciles and its evolution over time.

commodity trading advisors, CTA, managed futures, futures, hedge fund, alternative investments, persistence, performance, Carhart, Capocci, Barclay Trading Group, survivorship bias, dissolution frequencies, dissolution, index

Abstract:
This study precisely analyses how the insertion of convertible arbitrage funds into a classical portfolio of stocks and bonds impacts the distribution of returns. We demonstrate that although convertible arbitrage funds are attractive in mean-variance terms, results are more controversial when skewness and kurtosis are taken into account. The efficient frontier analysis will overestimate the benefits from including convertible arbitrage funds in an investment portfolio because it does not take into account the lower skewness and the higher kurtosis that is obtained in most cases when convertible arbitrage funds are included. We also set out that portfolios of two funds allow the investor to attain a better efficient frontier compared to single funds or to portfolios containing more than two funds. Finally, we analysed the proportion of hedge funds to allocate to the portfolio. Our analysis indicates that a high allocation of the portfolio to convertible arbitrage funds allows the investor to obtain interesting returns both in terms of mean-variance analysis and in terms of skewness and kurtosis.

convertible arbitrage, convertible bonds, empirical analysis, portfolio analysis, diversification

Abstract:
This study precisely analyses how the insertion of convertible
arbitrage funds into a classical portfolio of stocks and bonds impacts the distribution of returns. We demonstrate that although convertible arbitrage funds are attractive in mean-variance terms, results are more controversial when skewness and kurtosis are taken into account. The efficient frontier analysis will overestimate the benefits from including convertible arbitrage funds in an investment portfolio because it does not take into account the lower skewness and the higher kurtosis that is obtained in most cases when convertible arbitrage funds are included. We also set out that portfolios of two funds allow the investor to attain a better efficient frontier compared to single funds or to portfolios containing more than two funds. Finally, we analysed the proportion of hedge funds to allocate to the portfolio. Our analysis indicates that a high allocation of the portfolio to convertible arbitrage funds allows the investor to obtain interesting returns both in terms of mean-variance analysis and in terms of skewness and kurtosis.

convertibles, hedge funds, convertible arbitrage, mean-variance analysis, efficient frontier, spanning, correlation, skewness, kurtosis, portfolio theory, return distribution

Abstract:
Hedge funds have an absolute return performance objective stated independently of the global market conditions. Nevertheless they have been compared to classical bond and equity indices by academics since the late 90ies. Independently of their absolute or relative performance it is of particular importance to determine if some hedge funds consistently outperform their peers. This is exactly the objective of this study: Do some hedge fund consistently and significantly outperform others? Do some individual funds or some strategies continuously create alpha comparison to others?

hedge funds, survivorship bias, instant return history bias, correlation analysis, attrition rate, birth rate, sub-period analysis, bull market, bear market, persistence, performance

Abstract:
Using a comprehensive database made up of 2247 individual hedge funds (among which 1346 follow a directional strategy and 877 a non-directional one) and 647 funds of hedge funds for the period January 1994 - December 2002, we investigate whether portfolios of individual hedge funds can outperform existing funds of hedge funds. For this purpose, we have built portfolios using Carhart (1997) deciles classification. In regressing each of our individual hedge funds decile portfolios, first against the funds of hedge funds Global Index, then against each funds of hedge funds decile, and finally against each individual funds of hedge funds present in our database, we find that the best individual and directional hedge funds deciles are those of the middle, indicating that neither a momentum nor a contrarian strategy seems appropriate in portfolio construction in order to beat existing funds of hedge funds. However, it emerges that our non-directional hedge funds deciles consistently and significantly beat existing funds of hedge funds.

hedge funds, funds of funds, investible indices, performance, comparison, correlaiton, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile

Abstract:
Using a comprehensive database made up of 2247 individual hedge funds (among which 1346 follow a directional strategy and 877 a non-directional one) and 647 funds of hedge funds for the period January 1994-December 2002, we investigate whether portfolios of individual hedge funds can outperform existing funds of hedge funds. For this purpose, we have built portfolios using Carhart (1997) deciles classification. In regressing each of our individual hedge funds decile portfolios, first against the funds of hedge funds Global Index, then against each funds of hedge funds decile, and finally against each individual funds of hedge funds present in our database, we find that the best individual and directional hedge funds deciles are those of the middle, indicating that neither a momentum nor a contrarian strategy seems appropriate in portfolio construction in order to beat existing funds of hedge funds. However, it emerges that our non-directional hedge funds deciles consistently and significantly beat existing funds of hedge funds.

hedge funds, funds of funds, investible indices, performance, comparison, correlaiton, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile

Abstract:
Hedge funds are becoming available to a broader spectrum of investors through funds of hedge funds and investible hedge funds indices. There is no formal official definition of the strategies applied but each database providers defines its own strategies, which can count as much as 20 different strategies. This study aims at analysing hedge fund strategies and determining so many different hedge fund strategies that exists by analysing into details the correlation patterns that exists between theses strategies. This study proves that investible hedge funds indices segregated per strategy are strongly correlated. We have also determined that the correlation between investible hedge funds indices is much higher than the average correlation between the individual funds of each hedge fund strategy. The aggregation of individual funds into indices diversifies accordingly the risk but leads also to the loss of one of the major advantage of hedge funds, which is their weak correlation. Given that hedge funds indices are constructed on a quantitative basis, a fund of hedge funds is the only vehicle that allows a trade-off between the number of funds to include into a portfolio in order to reduce the risk inherent to hedge funds investments while keeping the correlation at a low level. As long as the fund of hedge funds double-fee structure does not impact its performance and considering that the fund manager structure its investment in such a way to keep a low degree of correlation between the fund of hedge funds and traditional financial assets, such investment represents the best alternative for a traditional investor to invest in hedge funds and improve its risk-return profile.

Hedge funds, funds of funds, investible indices, performance, comparison, correlaiton, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile

Abstract:
Hedge funds are becoming available to a broader spectrum of investors through funds of hedge funds and investible hedge funds indices. There is no official list of the strategies in use, but each database provider defines its own list, which which can have as many as 20 different strategies. This study aims at analysing hedge fund strategies, and determining how many different hedge fund strategies exist by analysing the correlation patterns among them. This study proves that investible hedge funds indices segregated per strategy are strongly correlated. We have also determined that the correlation between investible hedge funds indices is much higher than the average correlation between the individual funds of each hedge fund strategy. The aggregation of individual funds into indices diversifies the risk, but leads also to the loss of one of the major advantages of hedge funds, which is their weak correlation. Given that hedge funds indices are constructed on a fixed quantitative basis, a fund of hedge funds is the only vehicle that allows a trade-off between the number of funds to include a portfolio and the level of correlation, in order to reduce the risk inherent to hedge funds investments. As long as the fund of hedge funds double-fee structure does not impact its performance, and assuming that the fund manager structures its investment in such a way to keep a low degree of correlation between the fund of hedge funds and traditional financial assets, such investment represents the best alternative for a traditional investor to invest in hedge funds and improve the risk-return profile.

Hedge funds, funds of funds, investible indices, performance, comparison, correlaiton, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile

Abstract:
Using one of the largest hedge fund databases ever used (2796 individual funds including 801 dissolved), we investigate hedge funds performance using various asset pricing models, including an extension of Carhart's (1997) specification combined with the Fama and French (1998) and Agarwal and Naik (2002) models and a new factor that takes into account the fact that some hedge funds invest in emerging bond markets. This addition is particularly suitable for more than half of the hedge funds categories, and for all funds in general. The performance of hedge funds for several individual strategies and different subperiods, including the Asian Crisis period, indicates limited evidence of persistence in performance but not for extreme performers.

Hedge funds, performance, persistence, Asian crisis, emerging markets, CAPM, dissolution frequenties, survivorship bias, correlation, history bias, total returns