The Survival of Exchange-Listed Hedge Funds

Abstract

This paper attempts to determine whether exchange-listed hedge funds experience longer lifetimes than non-listed funds, even after factors known to affect survival, such as size and performance, are considered. The Kaplan-Meier estimator is used to compare survival times of listed and non-listed funds. The Cox proportional hazards model is used to make the same comparison, but by controlling for additional factors. The accelerated failure time (AFT) regression model is used to estimate the median survival time of hedge funds, based on values of explanatory variables. Listed hedge funds tend to be larger and adopt more conservative investment strategies than non-listed funds. Listed funds tend to survive roughly two years longer on average than non-listed funds, and this difference in longevity is persistent even after controlling for factors known to affect survival. Finally, we find that the failure rate of listed funds is substantially lower than that of non-listed funds, but only during the first five years of life.

Keywords: Hedge Funds, Listed Funds, Survival, Accelerated Failure Time

JEL Classification: M40, M41