Do the Best Hedge Funds Hedge?
University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)
Cristian Ioan Tiu
SUNY at Buffalo; University of Texas at Austin - Department of Finance
December 17, 2008
AFA 2009 San Francisco Meetings Paper
We provide a simple argument that suggests that better informed hedge funds choose to have less exposure to factor risk. Consistent with this argument we find that hedge funds that exhibit lower R-squares with respect to systematic factors have higher Sharpe ratios, higher information ratios, charge higher fees and attract more future inflows.
Number of Pages in PDF File: 46
Keywords: Hedge funds, Systematic risk, Investment performance
JEL Classification: G11, G23working papers series
Date posted: March 20, 2008 ; Last revised: December 19, 2008
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