This paper empirically decomposes hedge fund excess return into factor timing, security selection, and risk premium. Portfolio-level tests show that security selection explains most of the excess return generated by hedge funds during 1994-2009, and the contribution of factor timing is small....

This paper empirically decomposes hedge fund excess return into factor timing, security selection, and risk premium using Lo (2008)'s performance measure. Portfolio-level tests show that security selection explains most of the excess return generated by hedge funds during 1994-2009, and the...

Using comprehensive quarterly data on hedge fund stock holdings, we study the role of hedge funds in the process of stock price formation. We find that hedge funds tend to hold undervalued stocks, and that both hedge fund ownership and their trades are positively related to the degree of stock...