This paper provides an overview of the most important statistical properties of individual hedge fund returns. We find that the net-of-fees monthly returns of the average individual hedge fund exhibit significant degrees of negative skewness, excess kurtosis, as well as positive first-order...

We study the diversification effects from introducing hedge funds into a traditional portfolio of stocks and bonds. Our results make it clear that in terms of skewness and kurtosis equity and hedge funds do not combine very well. Although the inclusion of hedge funds may significantly improve a...

Using monthly return data on 455 hedge funds over the period 1994-2001 we study the diversification effects from introducing hedge funds into a traditional portfolio of stocks and bonds. Our results indicate that although the inclusion of hedge funds may significantly improve a portfolio's...

Using monthly return data over the period June 1994 - May 2001 we investigate the performance of randomly selected baskets of hedge funds ranging in size from 1 to 20 funds. The analysis shows that increasing the number of funds can be expected to lead not only to a lower standard deviation but...

Hedge funds exhibit a high rate of attrition that has increased substantially over time. Using data over the period 1994-2001, we show that lack of size, lack of performance and an increasingly aggressive attitude of old and new fund managers alike are the main factors behind this. Although...

The monthly return distributions of many hedge fund indices exhibit highly unusual skewness and kurtosis properties as well as first-order serial correlation. This has important consequences for investors. We demonstrate that although hedge fund indices are highly attractive in mean-variance...

In this paper we investigate the claim that hedge funds offer investors a superior risk-return trade-off. We do so using a continuous time version of Dybvig's (1988a, 1988b) payoff distribution pricing model. The evaluation model, which does not require any assumptions with regard to the return...

In this paper, we study the multivariate return properties of a large variety of commodity futures. We find that between commodity groupings (such as metals, energy, etc.) correlations are very low and mostly insignificant whereas within groups they tend to be much stronger. In addition,...