Are Investors Better Off with Small Hedge Funds in Times of Crisis?

Abstract

With the benefit of a more comprehensive dataset than previous authors in this area, in this paper we revisit the relationship between hedge fund performance and size. Our results indicate that there is a strong, negative relationship between hedge fund performance and size. But, in addition, we also find that rather than dissipating during the two recent periods of financial crisis, other things equal, investors would have been better off with smaller hedge funds than with large ones during these crisis periods. Finally, we also document clear cross-sectional variation in this relationship by broad hedge fund strategy.

Keywords: Hedge fund performance, Size, Age

JEL Classification: G20