Asian Hedge Funds: Return Persistence, Style, and Fund Characteristics

43 Pages Posted: 21 Jul 2003  

Melvyn Teo

Singapore Management University - Lee Kong Chian School of Business

Francis Koh

Singapore Management University - Lee Kong Chian School of Business

Winston T.H. Koh

Singapore Management University - School of Social Sciences

Date Written: June 2003

Abstract

This study explores the return persistence properties, styles, and fund characteristics of hedge funds that mainly invest in Asia. We examine, for the first time, a high resolution hedge fund dataset which includes monthly return information as well as detailed fund characteristics data. We find that the returns of Asian hedge funds persist most strongly at monthly horizons to quarterly horizons. This persistence weakens considerably when we lengthen the measurement period beyond a quarter, and does not appear to be due to the imputation of fees or to systematic risk as measured by a simple factor model. Further, we show that Asian funds comove largely with a common Asian equity markets component. Other major components that explain the cross-sectional variation in Asian hedge fund returns include a CTA component, two macro components, and three multi-strategy components. The seven style components in total explain about 64% of the variation in returns. Next, we study the relationship between the cross-section of fund returns and fund characteristics. We document a positive relationship between holding firm size and fund returns which is consistent with an "economies of scale" explanation. Moreover, we find that funds with higher redemption (lockup) periods achieve higher returns on average due to their ability to extricate from their positions in a timely fashion in the face of redemptions. However, there is no evidence to suggest that funds with higher expenses (management and performance fees) achieve higher returns.

Keywords: Asian hedge funds, hedge funds, style, persistence, fees

JEL Classification: G12, G15, G23

Suggested Citation

Teo, Melvyn and Koh, Francis and Koh, Winston T.H., Asian Hedge Funds: Return Persistence, Style, and Fund Characteristics (June 2003). Available at SSRN: https://ssrn.com/abstract=416960 or http://dx.doi.org/10.2139/ssrn.416960

Melvyn Teo (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828 0735 (Phone)
+65 6822 0777 (Fax)

Francis Koh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Federal Building #02-05
Singapore 912409
Singapore

Winston T.H. Koh

Singapore Management University - School of Social Sciences ( email )

469 Bukit Timah Road
Federal Building #02-08
Singapore, 259756
Singapore
+65 6822 0853 (Phone)
+65 6822 0833 (Fax)

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