The Peer Performance Ratios of Hedge Funds

31 Pages Posted: 8 Feb 2012 Last revised: 30 Mar 2017

David Ardia

University of Neuchatel - Institute of Financial Analysis; Laval University - Département de Finance et Assurance

Kris Boudt

Vrije Universiteit Brussel (VUB); VU University Amsterdam

Date Written: December 22, 2015

Abstract

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

Ardia, David and Boudt, Kris, The Peer Performance Ratios of Hedge Funds (December 22, 2015). Available at SSRN: https://ssrn.com/abstract=2000901 or http://dx.doi.org/10.2139/ssrn.2000901

David Ardia (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Rue A.-L. Breguet 2
Neuchatel, CH-2000
Switzerland

Laval University - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

Kris Boudt

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

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