How Hedge Funds Beat the Market

French, Craig W.; Ko, Damian B.

doi:10.2139/ssrn.927235

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How Hedge Funds Beat the Market

16 Pages Posted: 29 Aug 2006

See all articles by Craig W. French

Damian B. Ko

Corbin Capital Partners, L.P.

There are 2 versions of this paper

Date Written: July 14, 2006

Abstract

This paper investigates the determinants of hedge fund portfolio performance - whether hedge funds exhibit security selection skill and market-timing skill. We examine a sample of 157 long-short equity hedge funds over the 10-year period from January, 1996 through December, 2005. To account for nonlinearities we employ the Treynor and Mazuy (1966) quadratic model. To account for illiquidity we incorporate the Scholes and Williams (1977) nonsynchronous data model. Before and after adjusting for illiquidity, we find strong evidence of security selection skill and limited evidence of market-timing skill.

Keywords: Hedge Fund, determinants, portfolio, performance, Treynor, Scholes

JEL Classification: G00, G12, G14

Suggested Citation: Suggested Citation

French, Craig W. and Ko, Damian Bongjoon, How Hedge Funds Beat the Market (July 14, 2006). Available at SSRN: https://ssrn.com/abstract=927235 or http://dx.doi.org/10.2139/ssrn.927235