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, Hedge fund performance, Persistence, Alpha, Factor models, Bayesian, Bootstrap
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Areas of Excellence
Finance and Financial Markets
Publication
Journal of Financial Economics
Volume
84
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.
Do Hedge Funds Deliver Alpha? A Bayesian and Bootstrap Analysis. (2007). Journal of Financial Economics. 84, (1), 229-264. Research Collection Lee Kong Chian School Of Business.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2688
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Additional URL
https://doi.org/10.1016/j.jfineco.2005.12.009