SSRN-Global Hedge Funds: Risk, Return, and Market Timing by Hung Fung, Xiaoqing Eleanor Xu, Jot Yau

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Global Hedge Funds: Risk, Return, and Market Timing

HUNG-GAY FUNG
University of Missouri at St. Louis - College of Business Administration
XIAOQING ELEANOR XU
Seton Hall University, Stillman School of Business
JOT YAU
Seattle University - Albers College of Business & Economics

Financial Analysts Journal, Vol. 58, No. 6, November/December 2002

Abstract:
We examined the performance of 115 global equity-based hedge funds with reference to their target geographical markets in the seven-year period 1994-2000. Several results are noteworthy. First, global hedge fund managers do not show positive market-timing ability but do demonstrate superior security-selection ability; the Jensen's alphas we found, before and after controlling for market timing, are sizable and positive. Second, incentive fees and leverage both have a significant positive impact on a hedge fund's risk-adjusted return (as demonstrated by Sharpe ratios and Jensen's alphas) but not on a fund's "selectivity index" (i.e., its performance after controlling for market-timing effects). Third, incentive fees can lower the hedge fund's up-market and down-market systematic risk. Fourth, the size of a hedge fund is consistently related to its return performance. Finally, contrary to the general perception, leverage does not significantly affect the systematic risk of hedge funds.

Keywords: Alternative Investments: Hedge funds, Performance Measurement and evaluation: Performance measurement

Accepted Paper Series

Contact Information for HUNG-GAY FUNG (Contact Author) Email address for HUNG-GAY FUNG University of Missouri at St. Louis - College of Business Administration 8001 Natural Bridge Road St. Louis , MO 63121 United States 314-516-6374 (Phone)
Contact Information for XIAOQING ELEANOR XU Email address for XIAOQING ELEANOR XU Seton Hall University, Stillman School of Business 400 South Orange Avenue South Orange , NJ 07079 United States 973-761-9209 (Phone) 973-961-9217 (Fax)
Contact Information for JOT YAU Email address for JOT YAU Seattle University - Albers College of Business & Economics Broadway and Madison Seattle , WA 98121-4460 United States

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