Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?

73 Pages Posted: 1 Apr 2019 Last revised: 16 Apr 2019

See all articles by Juha Joenväärä

Juha Joenväärä

Aalto University School of Business

Mikko Kaupila

University of Oulu

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance

Pekka Tolonen

University of Oulu

Date Written: March 2019

Abstract

This paper proposes a novel database merging approach and re-examines the fundamental questions regarding hedge fund performance. Before drawing conclusions about fund performance, we form an aggregate database by exploiting all available information across and within seven commercial databases so that widest possible data coverage is obtained and the effect of data biases is mitigated. Average performance is significantly lower but more persistent when these conclusions are inferred from aggregate database than from some of the individual commercial databases. Although hedge funds deliver performance persistence, an average fund or industry as a whole do not deliver significant risk-adjusted net-of-fee returns while the gross-of-fee returns remain significantly positive. Consistent with previous literature, we find a significant association between fund-characteristics related to share restrictions as well as compensation structure and risk-adjusted returns.

Keywords: Hedge Fund Performance, Managerial Skill, Persistence, Sample selection bias

JEL Classification: G11, G12, G23

Suggested Citation

Joenvaara, Juha and Kaupila, Mikko and Kosowski, Robert and Tolonen, Pekka, Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses? (March 2019). CEPR Discussion Paper No. DP13618, Available at SSRN: https://ssrn.com/abstract=3363531

Juha Joenvaara (Contact Author)

Aalto University School of Business ( email )

Finland

Mikko Kaupila

University of Oulu ( email )

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

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

London
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Pekka Tolonen

University of Oulu ( email )

P.O. Box 4600
Oulu FIN-90014
Finland

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