24. Performance of Hedge Funds

  1. H. Kent Baker and
  2. Greg Filbeck
  1. Dianna Preece

Published Online: 2 APR 2013

DOI: 10.1002/9781118656501.ch24

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

How to Cite

Preece, D. (2013) Performance of Hedge Funds, in Alternative Investments: Instruments, Performance, Benchmarks, and Strategies (eds H. K. Baker and G. Filbeck), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118656501.ch24

Author Information

  1. Professor of Finance, University of Louisville

Publication History

  1. Published Online: 2 APR 2013
  2. Published Print: 18 MAR 2013

ISBN Information

Print ISBN: 9781118241127

Online ISBN: 9781118656501

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Keywords:

  • hedge funds;
  • hedge fund performance;
  • risk-adjusted returns;
  • correlation with traditional assets;
  • skewness;
  • kurtosis

Summary

Hedge funds pool private capital and engage in a wide range of investment and trading activities. Fund managers take long and short positions and use leverage and derivatives to accomplish the return objectives of the fund. Actions of fund managers rather than those of market forces tend to drive hedge fund returns. Funds are limited to accredited investors who generally are high-net-worth individuals and institutional investors. Substantial research examines hedge funds during the last 15 years. Studies show that hedge funds have negatively skewed returns with positive excess kurtosis. Hedge fund returns exhibit low correlation with stock and bond returns, making them an attractive addition to a portfolio of traditional assets. Studies also indicate that adding hedge funds to portfolios of traditional assets tends to reduce risk and increase returns.