Replication and Evaluation of Fund of Hedge Funds Returns

Alternative Investment Research Centre Working Paper No. 28

Cass Business School Research Paper

24 Pages Posted: 3 Jan 2006  

Harry M. Kat

Independent

Helder P. Palaro

Independent

Date Written: January 3, 2006

Abstract

In this paper we use the hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 485 funds of hedge funds. The results indicate that the majority of funds of funds have not provided their investors with returns, which they could not have generated themselves by trading S&P 500, T-bond and Eurodollar futures. Purely in terms of returns therefore, most funds of hedge funds have failed to add value.

Keywords: Hedge funds, fund of funds, return replication, performance evaluation, copula, alpha

JEL Classification: G11, G23

Suggested Citation

Kat, Harry M. and Palaro, Helder P., Replication and Evaluation of Fund of Hedge Funds Returns (January 3, 2006). Alternative Investment Research Centre Working Paper No. 28; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=873465 or http://dx.doi.org/10.2139/ssrn.873465

Harry M. Kat (Contact Author)

Independent

No Address Available

Helder P. Palaro

Independent ( email )

Monaco

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