Hedge Fund Performance: End of an Era?

This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Two of the predictors reliably picked funds that lowered the volatility and...

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Published inFinancial analysts journal Vol. 77; no. 3; pp. 109 - 132
Main Authors Bollen, Nicolas P.B., Joenväärä, Juha, Kauppila, Mikko
Format Journal Article
LanguageEnglish
Published Charlottesville Routledge 03.07.2021
Taylor & Francis Ltd
Subjects
Bond portfolios
Hedge funds
Prediction models
Subsets
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Abstract This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Two of the predictors reliably picked funds that lowered the volatility and raised the Sharpe ratio of a multi-asset-class portfolio relative to a stock/bond portfolio over the full 1997-2016 sample. Hedge fund allocations reduced volatility in two subperiods but failed to improve the Sharpe ratio from 2008 onward. We explore potential explanations for the erosion of hedge fund performance.
AbstractList This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Two of the predictors reliably picked funds that lowered the volatility and raised the Sharpe ratio of a multi-asset-class portfolio relative to a stock/bond portfolio over the full 1997-2016 sample. Hedge fund allocations reduced volatility in two subperiods but failed to improve the Sharpe ratio from 2008 onward. We explore potential explanations for the erosion of hedge fund performance.
Author Joenväärä, Juha
Kauppila, Mikko
Bollen, Nicolas P.B.
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Snippet This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of...
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SubjectTerms Bond portfolios
Hedge funds
Prediction models
Subsets
Title Hedge Fund Performance: End of an Era?
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