Publication Type
Journal Article
Version
Postprint
Publication Date
4-2007
Abstract
Using a robust bootstrap procedure, we find that top hedge fund performance cannot be explained by luck, and that hedge fund performance persists at annual horizons. Moreover, we show that Bayesian measures, which help overcome the short-sample problem inherent in hedge fund returns, lead to superior performance predictability. Relative to sorting on OLS alphas, sorting on Bayesian alphas yields a 5.5 percent per year increase in the alpha of the spread between the top and bottom hedge fund deciles. Our results are robust, and relevant to investors, as they are neither confined to small funds, nor driven by incubation bias, backfill bias or serial correlation.
Keywords
Hedge Funds, Performance, Alpha, Factor models, Bayesian, Bootstrap
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Financial Economics
Issue
1
First Page
229
Last Page
264
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2005.12.009
Publisher
Elsevier
Citation
KOSOWSKI, Robert; NAIK, Narayan Y.; and TEO, Melvyn.
(2007). Research Collection BNP Paribas Hedge Fund Centre. Journal of Financial Economics
, 84(1)
, 229.
Available at: https://ink.library.smu.edu.sg/bnp_research/3
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2005.12.009