hedge funds risk and return

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1、CHAPTER27HEDGEFUNDS:RISKANDRETURN∗BurtonG.MalkielandAtanuSahaSincetheearly1990s,hedgefundshavebecomeanincreasinglypopularassetclass.Theamountinvestedgloballyinhedgefundsrosefromapproximately$50billionin1990toapproximately$1trillionbytheendof2004.1Andbecau

2、sethesefundscharacteristicallyusesubstantialleverage,theyplayafarmoreimportantroleintheglobalsecuritiesmarketsthanthesizeoftheirnetassetsindicates.MarketmakersontheflooroftheNYSEhaveestimatedthatduring2004,tradesbyhedgefundsoftenaccountedformorethanhalfoft

3、hetotaldailynumberofshareschanginghands.Moreover,investmentsinhedgefundshavebecomeanimportantpartoftheassetmixofinstitutionsandevenwealthyindividualinvestors.Weexamineareasonablycomprehensivedatabaseofhedgefundreturnsandestimatethemagnitudeoftwosubstantia

4、lbiasesthatcaninfluencemeasuresofhedgefundperfor-manceinthedataseries.Thereaderwillseethatthesebiasesmaybefargreaterthanhasbeenestimatedinpreviousstudies.Inthisarticle,wediscussourconstructionofadatabasethatisrelativelyfreeofbiasandexaminenotonlythereturns

5、ofhedgefundsbutalsothedis-tinctlynonnormalcharacteristicsoftheirreturns.Wealsoinvestigatethesubstantialattritionofhedgefunds,analyzethedeterminantsofhedgefunddemise,andprovidetheresultsoftestsofreturnpersistence.THETASSDATABASEWeusedthedatabaseprovidedbyT

6、ASS,aunitofTremontCapitalManagement,tostudythecharacteristicsofhedgefundreturns.TheTASSdatabasecoversbetweenone-thirdandone-halfofthetotalnumberofhedgefundsinexistence.Thenumberoffundscoveredineachcategoryeachyearisgiveninthetables.2Ofcourse,thefundsnotin

7、cludedintheTASSdatabasemayhavedifferentcharacteristicsfromthefundsreportedtoTASS,butwhentheTASSservicewaspurchasedbyTremontinMarch1999,TremontendeavoredtogetthosehedgefundsthatreportedtoTremontandotherdatabaseservicestobeginreportingtoTASS.∗Reprintedfromt

8、heFinancialAnalystsJournal(November/December2005):80–88.391CH027.indd3918/28/108:38:03PM392PartIII:ManagingRiskAlternativeInvestmentsAsaresult,duringtheearly2000s,TASSbecameoneofthemostcomprehensivereportingservices