Measuring Funds of Hedge Funds Performance Using Quantile Regressions: Do Experience and Size Matter?
University of St. Gallen - SoF: School of Finance
Dieter G. Kaiser
Robus Capital Management Limited; Frankfurt School of Finance & Management
Albert-Ludwigs University of Freiburg; University of St. Gallen
September 11, 2009
Journal of Alternative Investments, Vol. 12, No. 2, pp. 41-53, 2009
This paper is the first to use quantile regression to analyze the impact of experience and size of funds of hedge funds (FHFs) on performance. In comparison to OLS regression, quantile regression provides a more detailed picture of the influence of size and experience on FHF return behaviour. Hence, it allows us to study the relevance of these factors for various return and risk levels instead of average return and risk, as is the case with OLS regression. Because FHF size and age (as a proxy for experience) are available in a panel setting, we can perform estimations in an unbalanced stacked panel framework. This study analyzes time series and descriptive variables of 649 FHFs drawn from the Lipper TASS Hedge Fund database for the time period January 1996 to August 2007. Our empirical results suggest that experience and size have a negative effect on performance, with a positive curvature at the higher quantiles. At the lower quantiles, however, size has a positive effect with a negative curvature. Both factors show no significant effect at the median.
Keywords: Quantile regression, funds of hedge funds, performance, asset under management, fund age, fund manager's experience
JEL Classification: G11, G12, G23Accepted Paper Series
Date posted: August 29, 2008 ; Last revised: May 29, 2013
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