Evaluating Hedge Fund Performance

Abstract

In this paper, we are using Jensen’s alpha, Sharpe ratio and multi-factor models to test the performance of hedge funds for the period 1998 to 2003. Hedge fund returns exhibit a high degree of non-linearity and kurtosis. Our results suggest that for the examined period hedge funds provide superior performance despite the high transactions costs, management fees and incentive fees. They have offered value for money as hedge funds managers display a positive alpha. The categories of hedge funds that are examined are emerging markets, distressed securities, event driven, fixed income arbitrage, global macro, long/short equity and funds of funds. The sample is provided from Data Feeder dataset. It is very comprehensive and includes hedge funds categories from the period 1998 to 2003. The database includes defunct funds and funds that ceased to operate and, therefore, is free from survivorship bias.

Keywords: Hedge fund performance