Persistent Doubt: An Examination of Hedge Fund Performance
44 Pages Posted: 3 Apr 2014 Last revised: 28 Sep 2015
Date Written: March 31, 2014
Forming top quintile portfolios on the Sharpe ratio, the alpha, the information ratio, the excess manipulation proof performance measure EMPPM and the doubt ratio; we find that these portfolios persistently outperform similarly constructed mediocre third quintile portfolios throughout the twelve year period from January 31, 2001 to December 31, 2012. However, performance is more modest and less persistent when forming portfolios on the EMPPM. It is clear than when selecting funds according to the ranking by the Sharpe and the information ratio, investors are also selecting funds that have suspicious returns. In contrast, portfolios formed on the alpha and especially the EMPPM has much less excess doubt that more rarely persist.
Keywords: Hedge funds, performance, manipulation proof measure, doubt ratio
JEL Classification: G11, G12, G23, G24
Suggested Citation: Suggested Citation