CAPM alpha explains hedge fund flows better than alphas from more sophisticated models. This suggests that investors pool together sophisticated model alpha with returns from exposures to traditional (except for the market) and exotic risks. We decompose performance into traditional and exotic...

We develop a new tail risk measure for hedge funds to examine the impact of tail risk on fund performance and to identify the sources of tail risk. We find that tail risk affects the cross-sectional variation in fund returns, and investments in both, tailsensitive stocks as well as options,...

This paper investigates empirically whether uncertainty about volatility of the market portfolio can explain the performance of hedge funds both in the cross-section and over time. We measure uncertainty about volatility of the market portfolio via volatility of aggregate volatility (VOV) and...

We examine the funding liquidity risk of funds of hedge funds (FoFs) by proposing a new measure, illiquidity gap, which captures the mismatch between the liquidity of a FoF's portfolio and the liquidity offered to its own investors. We find that hedge funds that are exposed to the flow-driven...

Hedge funds are fundamentally exposed to equity volatility, skewness, and kurtosis risks based on the systematic pattern and significant spread in alphas from the existing models that do not control for the higher-moment risks. The spread and pattern in alphas do not disappear with bootstrap...

In this paper, we identify and document the empirical characteristics of the key drivers of convertible arbitrage as a strategy and how they impact the performance of convertible arbitrage hedge funds. We show that the returns of a buy-and-hedge strategy involving taking a long position in...

Value premium has been well documented in the finance literature. This paper empirically examines whether the value strategy of buying value stocks and selling growth stocks is profitable after controlling for transaction costs. Using the limited dependent variable estimate of transaction costs...

We examine the determinants and consequences of changes in hedge fund fee structures. We show that fee changes are asymmetric with much greater incidence of fee increases compared to fee decreases. We find that managers of younger and smaller funds are more likely to increase fees after good...

This paper shows that portfolio constraints have important implications for management compensation and performance evaluation. In particular, in the presence of portfolio constraints, allowing for benchmarking can be bene…cial. Benchmark design arises as an alternative effort inducement...

This paper formally analyzes the biases related to self-reporting in hedge fund databases by matching the quarterly equity holdings of a complete list of 13F-filing hedge fund companies to the union of five major commercial databases of self-reporting hedge funds between 1980 and 2008. We find...