Predicting Hedge Fund Performance When Fund Returns Are Skewed

40 Pages Posted: 12 Jun 2014 Last revised: 20 Oct 2019

See all articles by Andrea J. Heuson

Andrea J. Heuson

University of Miami - Department of Finance

Mark C. Hutchinson

University College Cork

Alok Kumar

University of Miami - Miami Herbert Business School

Date Written: October 1, 2019

Abstract

We show that fund-specific return skewness is associated with managerial skill and future hedge fund performance. Specifically, skewness in fund returns reflects managerial skill in avoiding large drawdowns. Using a new measure of investment skill that accounts for this managerial ability, we demonstrate that traditional performance measures under-estimate (over-estimate) managerial performance when returns exhibit positive (negative) fund-specific skewness. Our new measure is particularly valuable during periods of economic crisis, when the annual risk-adjusted out-performance is 5.5%.

Keywords: Performance measurement, hedge funds, fund-specific skewness, performance

JEL Classification: G10, G19, G20

Suggested Citation

Heuson, Andrea J. and Hutchinson, Mark C. and Kumar, Alok, Predicting Hedge Fund Performance When Fund Returns Are Skewed (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=2448486 or http://dx.doi.org/10.2139/ssrn.2448486

Andrea J. Heuson

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-4362 (Phone)
305-284-4800 (Fax)

Mark C. Hutchinson

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

517B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://sites.google.com/view/alokmiami/home

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