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
University of Liege - Department of Economics
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, G12working papers series
Date posted: April 27, 2005
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.609 seconds