46 Pages Posted: 20 Mar 2008 Last revised: 19 Dec 2008
Date Written: December 17, 2008
We provide a simple argument that suggests that better informed hedge funds choose to have less exposure to factor risk. Consistent with this argument we find that hedge funds that exhibit lower R-squares with respect to systematic factors have higher Sharpe ratios, higher information ratios, charge higher fees and attract more future inflows.
Keywords: Hedge funds, Systematic risk, Investment performance
JEL Classification: G11, G23
Suggested Citation: Suggested Citation
Titman, Sheridan and Tiu, Cristian Ioan, Do the Best Hedge Funds Hedge? (December 17, 2008). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1107627 or http://dx.doi.org/10.2139/ssrn.1107627
By Andrew Ang