On the underestimation of risk in hedge fund performance persistence: geolocation and investment strategy effects.

Klubinski W., J. and Verousis T. (2021) "On the underestimation of risk in hedge fund performance persistence: geolocation and investment strategy effects." In: C. Zopounidis et al. (eds.), Financial Risk Management and Modeling, Risk, Systems and Decisions.

37 Pages Posted: 21 Jun 2019 Last revised: 3 May 2021

See all articles by William Joseph Klubinski

William Joseph Klubinski

Newcastle Business School (Northumbria University)

Thanos Verousis

University of Essex

Date Written: March 28, 2020

Abstract

Despite the exponential increase in the literature related to the performance of Alternative Investment Funds (AIFs), risk management with respect to the measurement of performance persistence remains largely unexplored. In this paper, we investigate the impact of geolocation and investment strategy effects on the estimation of risk in performance persistence measurement dynamics. This aspect of risk in performance persistence is crucial as it allows us to show the combined effects of geolocation and investment strategy choice on risk-adjusted performance persistence. We report strong performance persistence when analysing the individual domicile or strategy. However, as we move to consider a combination of both domicile and the investment strategy, we can observe diminished persistence as well as its loss and reversal. The results of our cross-comparison show that the sole reliance on the individual domicile/investment strategy focused clusters can be grossly misleading and lead to capital losses.

Keywords: hedge funds, persistence, performance

JEL Classification: F3, G23, G11

Suggested Citation

Klubinski, William Joseph and Verousis, Thanos, On the underestimation of risk in hedge fund performance persistence: geolocation and investment strategy effects. (March 28, 2020). Klubinski W., J. and Verousis T. (2021) "On the underestimation of risk in hedge fund performance persistence: geolocation and investment strategy effects." In: C. Zopounidis et al. (eds.), Financial Risk Management and Modeling, Risk, Systems and Decisions., Available at SSRN: https://ssrn.com/abstract=3401303 or http://dx.doi.org/10.2139/ssrn.3401303

William Joseph Klubinski (Contact Author)

Newcastle Business School (Northumbria University) ( email )

City Campus East
Newcastle upon Tyne, Tyne and Wear NE1 8ST
United Kingdom

Thanos Verousis

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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