Hedge Funds: Performance, Risk, and Capital Formation
CFA Institute Research Foundation; Maple Financial Group
David A. Hsieh
Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER)
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)
Narayan Y. Naik
London Business School - Institute of Finance and Accounting
August 1, 2008
The Journal of Finance, Vol. LXIII, No. 4, August 2008
We use a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004. While the average fund-of-funds delivers alpha only in the period between October 1998 and March 2000, a subset of funds-of-funds consistently delivers alpha. The alpha-producing funds are not as likely to liquidate as those that do not deliver alpha, and experience far greater and steadier capital inflows than their less fortunate counterparts. These capital inflows attenuate the ability of the alpha producers to continue to deliver alpha in the future.
Number of Pages in PDF File: 44
Keywords: hedge funds, funds-of-funds, performance, alpha, survival, flows, capacity constraints
JEL Classification: G11, G12, G23
Date posted: August 16, 2005 ; Last revised: July 11, 2011
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