Hedge Fund Performance: End of an Era?

Nicolas P. B. Bollen*, Juha Joenvaara, Mikko Kauppila

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)
61 Downloads (Pure)

Abstract

This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Two of the predictors reliably picked funds that lowered the volatility and raised the Sharpe ratio of a multi-asset-class portfolio relative to a stock/bond portfolio over the full 1997-2016 sample. Hedge fund allocations reduced volatility in two subperiods but failed to improve the Sharpe ratio from 2008 onward. We explore potential explanations for the erosion of hedge fund performance.

Original languageEnglish
Pages (from-to)109-132
Number of pages24
JournalFINANCIAL ANALYSTS JOURNAL
Volume77
Issue number3
Early online date15 Jul 2021
DOIs
Publication statusPublished - 2021
MoE publication typeA1 Journal article-refereed

Keywords

  • MUTUAL FUNDS
  • RISK
  • DYNAMICS
  • MARKET
  • BIASES
  • TIME

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