Hedge Fund Strategies: A non-Parametric Analysis
48 Pages Posted: 27 Dec 2019
Date Written: August 2019
We investigate why top performing hedge funds are successful. We find evidence that top performing hedge funds follow a different strategy than mediocre performing hedge funds as they accept fewer risk factors that mostly anticipate the troubling economic conditions prevailing after 2006. Holding alpha performance constant, top performing funds mostly avoid relying on passive investment in illiquid investments but earn risk premiums by accepting market risk. Additionally, they seem able to exploit fleeting opportunities leading to momentum profits while closing losing strategies thereby avoiding momentum reversal.
Keywords: hedge funds, manipulation proof performance measure, hedge fund strategies, stochastic dominance, bootstrap
JEL Classification: G11, G12, G2
Suggested Citation: Suggested Citation