Assessing the Performance of the Hedge Funds Market: An Application to the Italian Hedge Funds Industry

28 Pages Posted: 28 Jun 2007

See all articles by Alessandro Paolo Luigi Cipollini

Alessandro Paolo Luigi Cipollini

Deutsche Bank, Fixed Income Research; Università Degli Studi del Sacro Cuore di Milano - Laboratory of Statistics; University of Milan-Bicocca - Department of Mathematics and Applications

Riccardo Bramante

Laboratory of Statistics

Antonio Manzini

UBS Global Asset Management

Date Written: May/June 2007

Abstract

Due to the complexity and heterogeneity of hedge fund strategies, assessing their performance is a challenging task. Reminiscent of the mutual fund industry, the literature has evolved in the direction of refining traditional measures (e.g. the Sharpe ratio) or introducing new ones.

This paper offers a new approach, based on the Principal Component Analysis (PCA), to uncover the relevant information for performance measurement, quantify, and combine it into a unique rank.

In addition, this paper assesses the ability of each individual hedge fund to raise the efficiency of a balanced portfolio by means of an extension of the Modigliani - Modigliani index. Finally, for illustration purposes, the methodology is applied for assessing the recent performance of the nascent Italian hedge fund industry.

Keywords: Hedge funds, Assessing performance, Portfolio's efficiency, Principal component analysis, Modigliani-Modigliani Index

JEL Classification: G11, G12, C35

Suggested Citation

Cipollini, Alessandro Paolo Luigi and Bramante, Riccardo and Manzini, Antonio, Assessing the Performance of the Hedge Funds Market: An Application to the Italian Hedge Funds Industry (May/June 2007). Available at SSRN: https://ssrn.com/abstract=995607 or http://dx.doi.org/10.2139/ssrn.995607

Alessandro Paolo Luigi Cipollini (Contact Author)

Deutsche Bank, Fixed Income Research ( email )

Winchester House
Great Winchester Street, 1
London EC2N 2DB
United Kingdom

Università Degli Studi del Sacro Cuore di Milano - Laboratory of Statistics ( email )

Via Necchi 9
Milano, MI 20121
Italy

HOME PAGE: http://www.unicatt.it

University of Milan-Bicocca - Department of Mathematics and Applications ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, MI 20126
Italy
+390264485728 (Phone)

HOME PAGE: http://www.matapp.unimib.it

Riccardo Bramante

Laboratory of Statistics ( email )

Via Necchi 9
Milano, MI 20121
Italy

Antonio Manzini

UBS Global Asset Management ( email )

Zurich, CH-8098
Switzerland

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