We examine the potential for selection bias in voluntarily reported hedge fund performance data. We construct a novel set of hedge fund returns that have never been reported to a commercial hedge fund database. These returns allow a direct comparison of performance between funds that choose to...

Hedge Fund returns are often highly serially correlated mainly due to illiquidity exposures given that investments in such securities tend to be inactively traded and associated market prices are not always readily available. Following that, observed returns of such alternative investments tend...

In this paper we analyze the contribution of hedge funds in optimal asset allocations for different investor clienteles. The preferences of specific institutional investors are captured by implementing a Bayesian asset allocation framework that incorporates heterogeneous expectations regarding...

We use proprietary data to examine factors that lead hedge fund managers to offer hurdle rates and investigate relative hedge fund performance based on risk adjusted returns. Using data from 3,571 hedge funds over a 15 year period, we find that funds that do not offer a hurdle rate outperform...

In the paper a multivariate unobserved components model for returns and net inflows into hedge funds is employed to assess whether the flows of funds into the industry are dynamically related to returns. The econometric model is used to estimate expected flows and expected returns as unobserved...

This paper provides discussion on factor-based modelling for hedge fund returns, and demonstrates replication via both rolling windows and Kalman filters. In particular, we focus on estimating time-varying hedge fund returns exposure through various asset-based style (ABS) factors. It is shown...

Hedge funds' extensive use of derivatives, short-selling, and leverage and their dynamic trading strategies create significant non-normalities in their return distributions. Hence, the traditional performance measures fail to provide an accurate characterization of the relative strength of hedge...

Hedge funds' extensive use of derivatives, short-selling, and leverage and their dynamic trading strategies create significant non-normalities in their return distributions. Hence, the traditional performance measures fail to provide an accurate characterization of the relative strength of hedge...

This paper develops a unified approach to comprehensively analyse individual hedge fund return predictability, both in- and out-of-sample. In-sample, we find that variation in hedge fund performance across changing market conditions is widespread and economically significant. The predictability...

We provide evidence that speculative capital of hedge funds is a key determinant for the profitability of optimal carry and momentum strategies in futures markets across asset classes. We construct optimal carry and momentum portfolios from the perspective of a utility maximizing risk averse...