The Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds

Juha Joenväärä, Robert Kosowski

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This article examines the effect of regulatory constraints on fund performance andrisk by comparing conventional and UCITS hedge funds. Using a matching estima-tor approach, we estimate the indirect cost of UCITS regulation to be between 1.06%and 4.05% per annum in terms of risk-adjusted returns. These performance differen-ces are likely to stem from UCITS constraints such as those governing eligibleassets, diversification, and short selling, and cannot be explained by differences inredemption terms or level of leverage. We confirm that our performance results arenot driven by management company characteristics, fund manager characteristics,or unobserved confounder bias.
Original languageEnglish
Pages (from-to)189-233
Number of pages45
JournalReview of Finance
Volume25
Issue number1
Early online date18 Jul 2020
DOIs
Publication statusPublished - Feb 2021
MoE publication typeA1 Journal article-refereed

Keywords

  • Hedge fund performance
  • Mutual fund performance
  • Managerial skill
  • Regulation
  • Constraints

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