Detecting Performance Persistence in Fund Managers: Book Benchmark Alpha Analysis

30 Pages Posted: 19 Dec 2005

See all articles by Rajesh K. Aggarwal

Rajesh K. Aggarwal

Northeastern University

Galin Georgiev

affiliation not provided to SSRN

Jake Pinato

affiliation not provided to SSRN

Date Written: Winter 2007

Abstract

We develop a new approach for relative evaluation of fund managers within a portfolio (Book). Based on the explicit positions of the funds and the positions of the overall portfolio, we decompose each fund's return into a beta and alpha component relative to the overall Book. We test this Book Benchmark analysis on a portfolio of equity-based hedge funds during a 31 month period. Our results indicate that Book Benchmark alphas are significantly more predictive than returns when the in-sample periods are short (six to nine months). This suggests that Book Benchmark alphas are a valuable quantitative tool for managing a portfolio of hedge funds with position level transparency. While our analysis is developed in the context of a fund of hedge funds because of data considerations, the Book Benchmark analysis is more general. It can be used in any situation involving manager selection as long as there is position level transparency.

Suggested Citation

Aggarwal, Rajesh K. and Georgiev, Galin and Pinato, Jake, Detecting Performance Persistence in Fund Managers: Book Benchmark Alpha Analysis (Winter 2007). Available at SSRN: https://ssrn.com/abstract=870467 or http://dx.doi.org/10.2139/ssrn.870467

Rajesh K. Aggarwal

Northeastern University ( email )

413 Hayden Hall
360 Huntington Avenue
Boston, MA 02115
United States

Galin Georgiev (Contact Author)

affiliation not provided to SSRN

Jake Pinato

affiliation not provided to SSRN

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