Abstract

http://ssrn.com/abstract=706121
 
 

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Funds of Hedge Funds versus Portfolios of Hedge Funds - A Comparative Analysis


Daniel P.J. Capocci


HEC - Université de Liège; Luxembourg School of Finance; Edhec Risk and Management Research Center

Valerie Nevolo


University of Liege - Department of Economics

March 2005


Abstract:     
Using a comprehensive database made up of 2247 individual hedge funds (among which 1346 follow a directional strategy and 877 a non-directional one) and 647 funds of hedge funds for the period January 1994-December 2002, we investigate whether portfolios of individual hedge funds can outperform existing funds of hedge funds. For this purpose, we have built portfolios using Carhart (1997) deciles classification. In regressing each of our individual hedge funds decile portfolios, first against the funds of hedge funds Global Index, then against each funds of hedge funds decile, and finally against each individual funds of hedge funds present in our database, we find that the best individual and directional hedge funds deciles are those of the middle, indicating that neither a momentum nor a contrarian strategy seems appropriate in portfolio construction in order to beat existing funds of hedge funds. However, it emerges that our non-directional hedge funds deciles consistently and significantly beat existing funds of hedge funds.

Keywords: hedge funds, funds of funds, investible indices, performance, comparison, correlaiton, correlation coefficient, risk, return, traditional financial assets, alternative investments, risk-return profile

JEL Classification: G1, G11, G12

working papers series


Not Available For Download

Date posted: April 27, 2005  

Suggested Citation

Capocci, Daniel P.J. and Nevolo, Valerie, Funds of Hedge Funds versus Portfolios of Hedge Funds - A Comparative Analysis (March 2005). Available at SSRN: http://ssrn.com/abstract=706121

Contact Information

Daniel P.J. Capocci, PhD - CAIA (Contact Author)
HEC - Université de Liège ( email )
Bld du Rectorat 7 Bat. B31
Liege, 4000
Belgium
+32/87784221 (Phone)
+32/87787140 (Fax)
Luxembourg School of Finance ( email )
4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg
Edhec Risk and Management Research Center ( email )
58, rue du Port
59046 Lille Cedex
France
Valerie Nevolo
University of Liege - Department of Economics ( email )
7 Boulevard du Rectorat
Batiment B31
4000 Liege
Belgium
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