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The Impact of Non-Normality Risks and Tactical Trading on Hedge Fund Alphas


Harry M. Kat



Joelle Miffre


EDHEC Business School
May 24, 2006

EFA 2003 Glasgow
Cass Business School Finance Working Paper No. WP-FF-21-2005

Abstract:     
Most previous tests of hedge fund performance have failed to model the exposure of hedge fund returns to systematic non-normality risks, nor have they taken the tactical asset allocation decisions of hedge funds managers into account. This paper shows that failure to account for these features leads to incorrect statistical inferences on the performance of 1 out of 4 hedge funds and overstates hedge funds' alpha by 1.54% on average. Put another way, hedge funds offer abnormal returns that are 23.1% lower than commonly accepted.

Number of Pages in PDF File: 27

Keywords: Hedge funds, performance evaluation, alpha, systematic skewness, systematic kurtosis, tactical asset allocation

JEL Classification: G12, G23

working papers series


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Date posted: August 3, 2003  

Suggested Citation

Kat, Harry M. and Miffre, Joelle, The Impact of Non-Normality Risks and Tactical Trading on Hedge Fund Alphas (May 24, 2006). EFA 2003 Glasgow; Cass Business School Finance Working Paper No. WP-FF-21-2005. Available at SSRN: http://ssrn.com/abstract=424368 or http://dx.doi.org/10.2139/ssrn.424368

Contact Information

Joelle Miffre (Contact Author)
EDHEC Business School ( email )
58 rue du Port
Lille, 59046
France
No contact information is available for Harry M. Kat
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