The Performance of Emerging Hedge Fund Managers
Rajesh K. Aggarwal
University of California, Irvine - Paul Merage School of Business
January 23, 2008
AFA 2009 San Francisco Meetings Paper
This paper provides the first systematic analysis of performance patterns for emerging hedge funds and managers in the hedge fund industry. Emerging managers have particularly strong financial incentives to create investment performance and, because of their size, may be more nimble than established ones. Performance measurement, however, needs to control for the usual biases afflicting hedge fund databases. Backfill bias, in particular, is severe for this type of study. After adjusting for such biases and using a novel event time approach, we find strong evidence of outperformance during the first two to three years of existence. Controlling for size, each additional year of age decreases performance by 48 basis points, on average. Cross-sectionally, early performance by individual managers is quite persistent, with early strong performance lasting for up to five years.
Number of Pages in PDF File: 45
Keywords: hedge funds, emerging managers, incentives, performance evaluation
JEL Classification: G11, G12, G14, G23, G32working papers series
Date posted: March 9, 2008 ; Last revised: December 21, 2008
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