Hedge Fund Performance: End of an Era?

63 Pages Posted: 11 Sep 2017 Last revised: 19 Feb 2020

See all articles by Nicolas P. B. Bollen

Nicolas P. B. Bollen

Vanderbilt University - Finance

Juha Joenväärä

Aalto University School of Business

Mikko Kauppila

University of Oulu

Date Written: February 18, 2020

Abstract

This paper studies hedge fund performance and confirms reports of an aggregate decline over the past decade. We test whether a comprehensive set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Seven of the predictors reliably pick funds that lower the volatility and raise the Sharpe ratio of a multi-asset class portfolio relative to a stock/bond portfolio over the full 1997 – 2016 sample. Hedge fund allocations reduce volatility across two sub-periods, but fail to improve the Sharpe ratio from 2008 onwards. Potential explanations for the erosion of hedge fund performance are explored.

Keywords: hedge fund performance

JEL Classification: G11, G12, G14, C31

Suggested Citation

Bollen, Nicolas P.B. and Joenvaara, Juha and Kauppila, Mikko, Hedge Fund Performance: End of an Era? (February 18, 2020). Vanderbilt Owen Graduate School of Management Research Paper No. 3034283, Available at SSRN: https://ssrn.com/abstract=3034283 or http://dx.doi.org/10.2139/ssrn.3034283

Nicolas P.B. Bollen (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Juha Joenvaara

Aalto University School of Business ( email )

Finland

Mikko Kauppila

University of Oulu ( email )

P.O. Box 4600
Oulu FIN-90014, 90570
Finland

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