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A Tail of Two Cities: On the Downside Risk and Loss Profile of Asian and North American Hedge Funds

55 Pages Posted: 7 Nov 2014 Last revised: 6 Jan 2015

Joseph Cherian

NUS Business School

Christine Kon

National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI)

William Weng

National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI)

Date Written: January 5, 2015

Abstract

This paper analyzes the downside risk and loss profiles of hedge funds in North America and Asia to identify any significant differences between the geographic markets and determine how these differences have converged or diverged over time. An attempt is made to understand the performance drivers that differentiate Asian from North American hedge funds. In the downside-risk analysis of 2,631 North American and 994 Asian hedge funds from January 1995 to February 2013, event-driven investment strategies for both geographic regions perform better than the other hedge fund investment strategies in relation to both risk and return, and downside risk. More diversified funds such as multi-strategy hedge funds do not necessarily perform better than single-manager strategies in relation to downside risk, while relative value strategies exhibit the most similar characteristics across the two geographies. Following their lackluster performance during the Asian Financial Crisis, Asian hedge funds improved their risk-adjusted performance, particularly during the recent Global Financial Crisis when their loss profile reached a level similar to that of their North American peers. Lastly, “nearby” funds, i.e., funds whose managers are located in the same investment geography, have slightly worse loss profiles than “distant” funds in both geographic markets, which result is slightly contrary to extant empirical evidence.

Keywords: Hedge Funds, Downside risk, Loss profile, North American hedge funds, Asian hedge funds, Risk-adjusted performance

Suggested Citation

Cherian, Joseph and Kon, Christine and Weng, William, A Tail of Two Cities: On the Downside Risk and Loss Profile of Asian and North American Hedge Funds (January 5, 2015). Available at SSRN: https://ssrn.com/abstract=2520354 or http://dx.doi.org/10.2139/ssrn.2520354

Joseph Cherian

NUS Business School ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
+65-6516-5991 (Phone)

HOME PAGE: http://bschool.nus.edu/biography#JosephCherian

Christine Kon (Contact Author)

National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI) ( email )

15 Kent Ridge Drive
Level 3, Mochtar Riady Building
Singapore, 119245
Singapore

William Weng

National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI) ( email )

15 Kent Ridge Drive
Level 3, Mochtar Riady Building
Singapore, 119245
Singapore

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