Has Hedge Fund Alpha Disappeared?
Journal of Investment Management (JOIM), First Quarter 2011
34 Pages Posted: 8 Jan 2010 Last revised: 21 Dec 2016
Date Written: April 6, 2011
Abstract
This paper investigates the alpha generation of the hedge fund industry based on a recent sample compiled from the Lipper/TASS database covering the time period from January 1994 to September 2008. We find a positive average hedge fund alpha in the cross-section for the majority of strategies and a positive and significant alpha for roughly half of all funds. Moreover, the alpha of three-quarter of the strategy indices is positive and significant in the time series. A comparison of a factor model in which the risk factors are selected based on a stepwise regression approach and the widely used factor model proposed by Fung and Hsieh (2004) reveals that the estimated alpha is robust with respect to the choice of the factor model. In contrast to prior research, we find no evidence of a decreasing hedge fund alpha over time. Moreover, based on our sample, we cannot confirm prior evidence pointing to capacity constraints in the hedge fund industry.
Keywords: Hedge Funds, Performance, Alpha, Factor Models, Capacity Constraints
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation
Register to save articles to
your library
Paper statistics
Recommended Papers
-
Benchmarking Hedge Funds: The Choice of the Factor Model
By Manuel Ammann, Otto R. Huber, ...
-
Absolute Momentum: A Simple Rule-Based Strategy and Universal Trend-Following Overlay
-
By Nick Baltas and Robert Kosowski
-
Exercises in Advanced Risk and Portfolio Management (ARPM) with Solutions and Code
-
By Andrew Ang
-
Momentum Strategies in Futures Markets and Trend-following Funds
By Nick Baltas and Robert Kosowski
-
A Five-Factor Asset Pricing Model
By Eugene F. Fama and Kenneth R. French
-
By Campbell R. Harvey and Yan Liu
-
…and the Cross-Section of Expected Returns
By Campbell R. Harvey, Yan Liu, ...
-
A Trend Factor: Any Economic Gains from Using Information over Investment Horizons?
By Yufeng Han, Guofu Zhou, ...