44 Pages Posted: 16 Aug 2005 Last revised: 11 Jul 2011
Date Written: August 1, 2008
We use a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004. While the average fund-of-funds delivers alpha only in the period between October 1998 and March 2000, a subset of funds-of-funds consistently delivers alpha. The alpha-producing funds are not as likely to liquidate as those that do not deliver alpha, and experience far greater and steadier capital inflows than their less fortunate counterparts. These capital inflows attenuate the ability of the alpha producers to continue to deliver alpha in the future.
Keywords: hedge funds, funds-of-funds, performance, alpha, survival, flows, capacity constraints
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation
Fung, William and Hsieh, David A. and Ramadorai, Tarun and Naik, Narayan Y., Hedge Funds: Performance, Risk, and Capital Formation (August 1, 2008). The Journal of Finance, Vol. LXIII, No. 4, August 2008. Available at SSRN: https://ssrn.com/abstract=778124
By Bing Liang