We examine the relationship between deviating from the benchmark and subsequent performance for hedge funds. We propose a simple new measure of benchmark deviations, termed the Dispersion Contribution Index (DCI), which is based on a fund's return-distance from the mean return of same-style...

There is still no consensus regarding a generally accepted factor model to assess risk-adjusted hedge fund performance. In this paper, we compare three alternative factor models: the widely used Fung and Hsieh (2004) seven-factor model, a recently proposed extension to an eight-factor model, and...

This paper aims to analyze and develop systematic methods to construct funds of funds (FOF) products investing in Chinese hedge funds, with low risk, high return and high Sharpe Ratio, or other ideal characteristics required by investors. Using performance data of more than 600 hedge funds, we...

This paper provides evidence on the interaction between hedge funds' performance and their market liquidity risk and funding liquidity risk. We demonstrate that funding liquidity risk is an important determinant of hedge fund performance. Hedge funds with high loadings on the funding liquidity...

A diverse set of measures allows investors to evaluate hedge fund portfolio managers' performance across different dimensions. The various measures quantify the effectiveness of security selection, account for investor flows, operating risk, and worst-case investment scenarios, net out benchmark...

A typical hedge fund manager receives greater compensation when the fund has a strong absolute or relative performance. Asymmetric performance fees and fund flow-performance relationship may create incentives for risk-shifting, estimated in our study by the change in fund return volatility in...

The average hedge fund represented by the HFRI Fund Weighted Composite Index of more than 2,000 funds lost 19 percent in 2008 but turned around and gained 20 percent in 2009. Was this extreme performance due to alpha or to embedded betas? The most-quoted measure of volatility is the VIX Index....

This chapter provides a perspective on the rapidly developing literature on investment performance evaluation. I use the stochastic discount factor approach to present and critique current performance measurement techniques in a unified setting. I offer a number of suggestions to improve...

We show that a simple and intuitive variable, the return of a bear spread portfolio orthogonalized with respect to the market (H-Bear factor), can serve as an important pillar for explaining the cross-section of hedge fund returns. Low H-Bear exposure funds (bear risk insurance sellers)...