TY - JOUR
T1 - Do Hedge Fund Managers Display Skill?
AU - Fung, Hung Gay
AU - Xu, Xiaoqing "Eleanor"
AU - Yau, Jot
N1 - 1. Hung-Gay Fung 1. The Dr. Y.S. Tsiang Chair Professor in the College of Business Administration of the University of Missouri-St. Louis in St. Louis, MO. (fungh{at}msx.umsl.edu) 2. Xiaoqing Eleanor Xu 1. An associate professor of finance in the W. Paul Stillman School of Business of Seton Hall University, South Orange, NJ.
PY - 2004
Y1 - 2004
N2 - This study uses monthly data on 115 hedge funds for the seven-year period 1994–2000 to examine performance after accounting for target market indices and illiquidity effects. We find that the excess return on hedge funds is so small relative to the survivorship bias that it can be considered trivial, a finding suggesting no manager skill. Results also indicate that higher moments of returns do not appear to have a significant impact on the performance measure with excess returns. Incentive fees have significant positive effects on excess returns using the simple CAPM, but not on excess returns adjusted for illiquidity effects using the Dimson model. In addition, incentive fees appear to motivate hedge fund managers to reduce the systematic risk. Management fees, fund size, fund age, and leverage are important factors in explaining excess returns, but not in determining contemporaneous or lagged market betas.
AB - This study uses monthly data on 115 hedge funds for the seven-year period 1994–2000 to examine performance after accounting for target market indices and illiquidity effects. We find that the excess return on hedge funds is so small relative to the survivorship bias that it can be considered trivial, a finding suggesting no manager skill. Results also indicate that higher moments of returns do not appear to have a significant impact on the performance measure with excess returns. Incentive fees have significant positive effects on excess returns using the simple CAPM, but not on excess returns adjusted for illiquidity effects using the Dimson model. In addition, incentive fees appear to motivate hedge fund managers to reduce the systematic risk. Management fees, fund size, fund age, and leverage are important factors in explaining excess returns, but not in determining contemporaneous or lagged market betas.
UR - https://jai.pm-research.com/content/6/4/22
U2 - 10.3905/jai.2004.391061
DO - 10.3905/jai.2004.391061
M3 - Article
VL - 6
JO - The Journal of Alternative Investments
JF - The Journal of Alternative Investments
ER -