Study: Smaller funds and younger funds outperform their peers
According to a recent study, hedge funds with greater managerial
incentives, smaller funds and younger funds outperform their peers, while
hedge funds with strict share restrictions are not associated with higher
risk-adjusted returns. It also showed that using a consolidated database
will help researchers avoid biases.
The study, "Revisiting 'Stylized Facts' About Hedge Funds - Insights from a
Novel Aggregation of the Main Hedge Fund Databases," by Juha Joenvaara
and Pekka Tolonen of the University of Oulu (Finland) and Robert Kosowski
of Imperial College Business School (London), aims to present stylised facts
about hedge fund performance and data biases based on a new database
aggregation - stylized facts being simplified presentations of empirical
findings.
The study's objective is to help hedge fund researchers when they compare
results across different studies by highlighting differences between
databases and "their effect on previously documented results."
The study used a comprehensive hedge fund database and documented
"economically important positive" risk-adjusted performance of the average
fund "while differences in magnitude are due to differences in fund size and
data biases, but not differences in fund risk exposures."
As this performance does not stick with any of the databases when using
value-weighted returns, the analysts show this is tied to fund size and
bigger biases in certain databases. (A value-weighted market return is a
weighted average of all stock returns, with the weights given by the market
value of the stock issue at the end......................
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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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