We present an extension of the traditional Sharpe ratio to allow for the evaluation of non-normal return distributions. Combining earlier work in this area with stochastic simulation, we develop a procedure that allows for the construction of a benchmark for the evaluation of the performance of...

We study the diversification effects from introducing hedge funds into a traditional portfolio of stocks and bonds. Our results make it clear that in terms of skewness and kurtosis equity and hedge funds do not combine very well. Although the inclusion of hedge funds may significantly improve a...

Using monthly return data on 455 hedge funds over the period 1994-2001 we study the diversification effects from introducing hedge funds into a traditional portfolio of stocks and bonds. Our results indicate that although the inclusion of hedge funds may significantly improve a portfolio's...

Using monthly return data over the period June 1994 - May 2001 we investigate the performance of randomly selected baskets of hedge funds ranging in size from 1 to 20 funds. The analysis shows that increasing the number of funds can be expected to lead not only to a lower standard deviation but...

Hedge funds exhibit a high rate of attrition that has increased substantially over time. Using data over the period 1994-2001, we show that lack of size, lack of performance and an increasingly aggressive attitude of old and new fund managers alike are the main factors behind this. Although...

We investigate the claim that hedge funds offer investors a superior risk-return tradeoff. We do so using a continuous-time version of Dybvig's (1988a), (1988b) payoff distribution pricing model. The evaluation model, which does not require any assumptions with regard to the return distribution...

In this paper we use the FundCreator hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 875 funds of hedge funds and 2073 individual hedge funds, up to an including November 2006. Comparing fund returns with the returns...

Disappointing performance is leading hedge fund investors to look for cheaper alternatives. Hedge fund indexation has been suggested as a possible solution. Unfortunately, investable hedge fund indices are nothing more than funds of funds in disguise, with performance similar or even worse than...