Hedge Fund Performance and Manager Skill

Edwards, Franklin R.; Caglayan, Mustafa

doi:10.1002/fut.2102

Cited by 261 publications

(74 citation statements)

References 42 publications

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“…The underlying rationale might be that larger funds realize economies of scale. Agarwal and Kale (2007) and Edwards and Caglayan (2001) arrive at a similar conclusion. The relation between AUM and performance should not, however, be linear.…”

Section: Fund Characteristics and Riskadjusted Performancesupporting

confidence: 52%

“…Various authors estimate the potential magnitude of the survivorship bias. Ackermann et al (1999) calculate an overestimation of returns due to survivorship bias of 0.16 per cent annually for the CISDM database, while Edwards and Caglayan (2001) find this figure to be 1.85 per cent p.a. for the same database.…”

Section: Datamentioning

confidence: 97%

“…As loss sharing is not foreseen in contracts, the fee structure resembles a long call option profile that the manager holds on the managed portfolio. Ackerman et al (1999), Koh et al (2003) and Edwards and Caglayan (2001) show that hedge funds, which collect higher incentive fees, have better performance, but Brown et al (1999) find no evidence for this proposition. Agarwal and Kale (2007) also arrive at the conclusion that neither the management fee and risk-adjusted performance nor the incentive fee and riskadjusted performance have statistically significant, positive relations.…”

Section: Fund Characteristics and Riskadjusted Performancementioning

confidence: 99%

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Factors that affect the performance of distressed securities hedge funds

Bontschev¹,

Eling

2013

J Deriv Hedge Funds

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We present a four factor model to replicate distressed securities hedge fund returns. The model considers the returns of short put options, a short straddle on bonds, the spread between high yield and Treasury bonds, and stocks with small market capitalization. On the basis of this model, we conduct a multivariate analysis of how fund characteristics affect risk-adjusted performance. A high-water mark and performance-based compensation are positively related to risk-adjusted performance, which is in line with much of the hedge fund literature. In contrast to other work, however, we find that lock-up is negatively related to performance and that fund age is unrelated to performance. Our work provides a better understanding of the nature and critical factors for the success of distressed securities hedge funds.

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Section: Fund Characteristics and Riskadjusted Performancesupporting

confidence: 52%

Section: Datamentioning

confidence: 97%

Section: Fund Characteristics and Riskadjusted Performancementioning

confidence: 99%

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Factors that affect the performance of distressed securities hedge funds

Bontschev¹,

Eling

2013

J Deriv Hedge Funds

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“…The results of the applications are compared 11 The CISDM hedge fund database has been subject of many academic studies. For the properties of this database, see, e.g., (Edwards and Caglayan 2001;Kouwenberg 2003;Capocci and Hübner 2004). 12 Altogether we analyzed 450 hedge funds.…”

Section: Data and Proceduresmentioning

confidence: 99%

Performance measurement of hedge funds using data envelopment analysis

Eling

2006

Fin Mkts Portfolio Mgmt

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Data envelopment analysis (DEA) is a nonparametric method from the area of operations research that measures the relationship of produced outputs to assigned inputs and determines an efficiency score. This efficiency score can be interpreted as a performance measure in investment analysis. Recent literature contains intensive discussion of using DEA to measure the performance of hedge funds, as this approach yields some advantages compared to classic performance measures. This paper extends the current discussion in three aspects. First, we present different DEA models and analyze their suitability for hedge fund performance measurement. Second, we systematize possible inputs and outputs for DEA and again examine their suitability for hedge fund performance measurement. Third, two rules are developed to select inputs and outputs in DEA of hedge funds. Using this framework, we find a completely new ranking of hedge funds compared to classic performance measures and compared to previously proposed DEA applications. Thus, we propose that classic performance measures should be supplemented with DEA based on the suggested rules to fully capture hedge fund risk and return characteristics.

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“…Finally, research to analyze, define and categorize hedge fund investment styles and performance. Edwards and Caglayan (2001) find that market neutral hedge fund strategies as well as event-driven and macro hedge fund strategies are the only ones to provide protection to investors in down trending markets. Ennis and Sebastian (2003) find that after the stock market peaked in March of 2000 hedge funds in general did not provide protection to investors; rather it was the managers' good timing of the market.…”

Section: Literature Reviewmentioning

confidence: 94%

Neutrality of equity market neutral strategy to period and index

Muhtaseb

Colborn

2012

J Deriv Hedge Funds

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and former research director for Global Fund Analysis in London, England. His primary research interest is in portfolio management, especially hedge funds performance, activism and fraud. He has published many research articles in leading journals and run executive seminars and CFA review courses in major financial centers. He holds a PhD in finance from the University of Tennessee, Knoxville. He is a CFA charteholder and CAIA member. ABSTRACT This study examines the performance of equity market neutral (EMN) hedge funds by estimating alpha and beta, using monthly excess returns of the Fidelity Investments Spartan s US Bond Index Fund, 1 the S&P 500 index and two indices of EMN strategies. The study investigates how much exposure to systematic risk is experienced by EMN hedge funds and hence by the investors in such funds. In addition, the article ascertains the stability of the estimated betas of EMN hedge fund indices. Results show that EMN fund indices had no systematic (stock and bond market) risk before the subprime mortgage crises of 2008. During the crises, the DJ Credit Suisse EMN index showed a positive beta in excess of 0.4, yet the Greenwich Van Hedge EMN index showed a beta less than 0.1. Similarly, the DJ Credit Suisse EMN index had no bond market beta up until November 2008. The Greenwich Van Hedge EMN index had almost no exposure to the market. The results were sensitive to market conditions and the EMN index. DJCS and GVH both had positive stock market alphas, which turned insignificant around October 2008. Similarly, both indices had positive bond market alphas, which turned insignificant around August-November 2008. Robert 'Eric' Colborn

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Hedge Fund Performance and Manager Skill

Cited by 261 publications

References 42 publications

Factors that affect the performance of distressed securities hedge funds

Factors that affect the performance of distressed securities hedge funds

Performance measurement of hedge funds using data envelopment analysis

Neutrality of equity market neutral strategy to period and index

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