Hedge Fund Performance and Manager Skill

Hedge fund performance appraisal using data envelopment analysis

“…Agarwal and Naik (2000) find significant quarterly performance persistence in hedge funds, while Edwards and Caglayan (2001) observe performance persistence for winners and losers. On the other hand, Brown et al (1999), Peskin et al (2000), and Ackermann et al (1999) uncover slight significant performance persistence, relative to traditional asset classes.…”

“…Recent studies, such as Edwards and Caglayan (2001) investigate hedge fund alphas using multifactor models, while Liang (2000) examines survivorship bias of hedge funds. Agarwal and Naik (2000) find significant quarterly performance persistence in hedge funds, while Edwards and Caglayan (2001) observe performance persistence for winners and losers.…”

“…Several authors have used multifactor models to examine hedge fund performance (Edwards and Caglayan, 2001;Gregoriou et al, 2002). However, as Brealey and Kaplanis (2001) note, there are problems inherent in using these types of traditional approaches in a world of non-normal returns.…”

“…It is not unusual that multifactor models based on indices do not work well for the non-normality of hedge fund returns. Due to their non-normal characteristics, it is difficult to find appropriate active benchmarks, and in some cases traditional benchmarks have been used to compare hedge fund returns resulting in low R-squared values (Gregoriou et al, 2002;Edwards and Caglayan, 2001).…”

Can hedge fund elites consistently beat the benchmark? A study of portfolio optimization

“…In contrast with the non-parametric approach above, Edwards and Caglayan (2001) and Agarwal and Naik (2000) explore this issue using a regression-based (parametric) method. In particular, they calculated the risk-adjusted return (e.g., the alpha value by a factor model) for a series of consecutive periods.…”