There is extensive empirical evidence that funds of hedge funds (FoHFs) quickly change their investment bets as a function of the changing market conditions. In this chapter, we first analyze the stability of risk exposure and performance of FoHFs during the period January 2005-June 2011. We...

20 years ago, Sharpe (1992) developed the Style Analysis for mutual funds; in this analysis, the weights mutual funds allocate to major asset classes are constrained to sum up to 1. In this paper we develop a Time-Varying Style Analysis (TVSA) in which the weights must sum up to 1 but are...

Utilizing several models and regression analytics I compare factor attribution, strategies, and active management fees for 11,394 U.S. equity mutual funds and a matched sample of hedge funds from 1994 to 2010. There is modest evidence to support alpha delivery by mutual and hedge fund managers...

As shown in the literature, delivering alpha over time and in different market environments is very difficult and relatively few managers have the ability to do so. Empirical analysis has shown that the main drivers of return for Long/Short Equity hedge funds are a stock market factor and the...

We establish a link between illiquidity and positive autocorrelation in asset returns among a sample of hedge funds, mutual funds, and various equity portfolios. For hedge funds, this link can be confirmed by comparing the return autocorrelations of funds with shorter vs. longer...

This study questions the rationality of people investing in HFs. I use a sample of London listed closed-end hedge funds to evaluate two criteria that imply irrational behavior. I find that the rationality of investors can not be rejected for the majority of time. However, the results also imply...

Classifying mandatory 13F stock-holding filings by manager type reveals that hedge fund strategies are mostly contrarian, while mutual fund strategies are largely trend following. The only institutional performers — the 2/3 of hedge fund managers that are contrarian — earn alpha of 2.4% per...

We study the out-of-sample predictability of the returns of pan-European harmonized mutual funds that apply hedge fund-like investment strategies (“Alternative UCITS”). Given these funds' higher liquidity, investors could exploit relevant information much easier than for hedge funds, and use...

This paper examines those mutual funds classified by Morningstar as “Multialternative” within their “Alternative” mutual fund classification. It follows an earlier paper, “Hedge Funds vs. Mutual Funds: An Examination of Equity Long/Short Funds,” which found that equity long/short...

We show that fund-specific return skewness is associated with managerial skill and future hedge fund performance. Specifically, skewness in fund returns reflects managerial skill in avoiding large drawdowns. Using a new measure of investment skill that accounts for this managerial ability, we...