31 Pages Posted: 8 Feb 2012 Last revised: 30 Mar 2017
Date Written: December 22, 2015
The proposed peer performance ratios of an investment fund estimate the percentage of peer funds with equal performance, as well as the proportion of peers that the fund outperforms and underperforms. The ratios aggregate the p–values of the pairwise tests of equal performance in such a way that they are robust to false discoveries – estimated alpha differentials for which the significance test has a low p–value while the true alpha is identical. When applied to hedge funds, we find that ranking funds on the outperformance ratio leads to a top quintile portfolio with a higher absolute and risk–adjusted performance than when the estimated alpha is used.
Keywords: False discoveries, hedge fund, peer performance, performance measurement
JEL Classification: C12, C21, C22
Suggested Citation: Suggested Citation
By Bing Liang