We investigate why top performing hedge funds are successful. We find evidence that top performing hedge funds follow a different strategy than mediocre performing hedge funds as they accept fewer risk factors that mostly anticipate the troubling economic conditions prevailing after 2006....

We seek evidence that top performing hedge funds follow a different strategy than mediocre performing hedge funds by examining the structure of significant risk factors that explain the out of sample excess net returns. Consequently, we examine the out of sample returns of hedge funds to...