IDEAS home Printed from https://ideas.repec.org/a/kap/fmktpm/v31y2017i1d10.1007_s11408-016-0283-7.html
   My bibliography  Save this article

Can investors benefit from the performance of alternative UCITS funds?

Author

Listed:
  • Michael Busack

    (Absolut Research GmbH)

  • Wolfgang Drobetz

    (Hamburg University)

  • Jan Tille

    (Absolut Research GmbH)

Abstract

We study the performance persistence of alternative UCITS funds, which are a hybrid between mutual funds and hedge funds. Persistence is gauged by alternative measures of performance and risk. Based on contingency tables, we find that performance persists for up to 2 years following ranking. However, persistence is stronger in the short run, and ranked portfolio tests indicate that investors can benefit from persistence for only up to 1 year. The evidence for persistence in risk is ambiguous. We link fund characteristics to performance persistence and find that offshore hedge fund experience enhances persistence. Our results are robust against survivorship bias and other potential database biases.

Suggested Citation

  • Michael Busack & Wolfgang Drobetz & Jan Tille, 2017. "Can investors benefit from the performance of alternative UCITS funds?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(1), pages 69-111, February.
    • Handle: RePEc:kap:fmktpm:v:31:y:2017:i:1:d:10.1007_s11408-016-0283-7
    DOI: 10.1007/s11408-016-0283-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11408-016-0283-7
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11408-016-0283-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Getmansky, Mila & Lo, Andrew W. & Makarov, Igor, 2004. "An econometric model of serial correlation and illiquidity in hedge fund returns," Journal of Financial Economics, Elsevier, vol. 74(3), pages 529-609, December.
    2. Ravi Jagannathan & Alexey Malakhov & Dmitry Novikov, 2010. "Do Hot Hands Exist among Hedge Fund Managers? An Empirical Evaluation," Journal of Finance, American Finance Association, vol. 65(1), pages 217-255, February.
    3. Franklin R. Edwards & Mustafa Onur Caglayan, 2001. "Hedge Fund Performance and Manager Skill," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(11), pages 1003-1028, November.
    4. Maria Do Ceu Ribeiro Cortez & Dean Paxson & Manuel Jose Da Rocha Armada, 1999. "Persistence in Portuguese mutual fund performance," The European Journal of Finance, Taylor & Francis Journals, vol. 5(4), pages 342-365.
    5. Roger Otten & Dennis Bams, 2002. "European Mutual Fund Performance," European Financial Management, European Financial Management Association, vol. 8(1), pages 75-101, March.
    6. Mila Getmansky, 2012. "The Life Cycle of Hedge Funds: Fund Flows, Size, Competition, and Performance," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-53.
    7. Florinda Silva & Maria do Céu Cortez & Manuel Rocha Armada, 2003. "Conditioning Information and European Bond Fund Performance," European Financial Management, European Financial Management Association, vol. 9(2), pages 201-230, June.
    8. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-341.
    9. David Blake & Allan Timmermann, 1998. "Mutual Fund Performance: Evidence from the UK," Review of Finance, European Finance Association, vol. 2(1), pages 57-77.
    10. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    11. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "Survivorship Bias and Mutual Fund Performance," The Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1097-1120.
    12. Dahlquist, Magnus & Engström, Stefan & Söderlind, Paul, 2000. "Performance and Characteristics of Swedish Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 409-423, September.
    13. Robert Kosowski & Allan Timmermann & Russ Wermers & Hal White, 2006. "Can Mutual Fund “Stars” Really Pick Stocks? New Evidence from a Bootstrap Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2551-2595, December.
    14. Miguel A. Ferreira & Aneel Keswani & António F. Miguel & Sofia B. Ramos, 2013. "The Determinants of Mutual Fund Performance: A Cross-Country Study," Review of Finance, European Finance Association, vol. 17(2), pages 483-525.
    15. Brown, Stephen J & Goetzmann, William N, 1995. "Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-698, June.
    16. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    17. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    18. Wolfgang Bessler & Wolfgang Drobetz & Heinz Zimmermann, 2009. "Conditional performance evaluation for German equity mutual funds," The European Journal of Finance, Taylor & Francis Journals, vol. 15(3), pages 287-316.
    19. Kosowski, Robert & Naik, Narayan Y. & Teo, Melvyn, 2007. "Do hedge funds deliver alpha? A Bayesian and bootstrap analysis," Journal of Financial Economics, Elsevier, vol. 84(1), pages 229-264, April.
    20. Benoît Dewaele & Iliya Markov & Hugues Pirotte & N. Tuchschmid, 2011. "Does manager offshore experience count in the alternative UCITS universe?," Working Papers CEB 11-060, ULB -- Universite Libre de Bruxelles.
    21. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," The Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
    22. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    23. Baquero, Guillermo & ter Horst, Jenke & Verbeek, Marno, 2005. "Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(3), pages 493-517, September.
    24. Michael Busack & Wolfgang Drobetz & Jan Tille, 2014. "Do alternative UCITS deliver what they promise? A comparison of alternative UCITS and hedge funds," Applied Financial Economics, Taylor & Francis Journals, vol. 24(14), pages 949-965, July.
    25. Richard B. Evans, 2010. "Mutual Fund Incubation," Journal of Finance, American Finance Association, vol. 65(4), pages 1581-1611, August.
    26. ter Horst, Jenke R. & Nijman, Theo E. & Verbeek, Marno, 2001. "Eliminating look-ahead bias in evaluating persistence in mutual fund performance," Journal of Empirical Finance, Elsevier, vol. 8(4), pages 345-373, September.
    27. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    28. Malkiel, Burton G, 1995. "Returns from Investing in Equity Mutual Funds 1971 to 1991," Journal of Finance, American Finance Association, vol. 50(2), pages 549-572, June.
    29. Carpenter, Jennifer N. & Lynch, Anthony W., 1999. "Survivorship bias and attrition effects in measures of performance persistence," Journal of Financial Economics, Elsevier, vol. 54(3), pages 337-374, December.
    30. Hendricks, Darryll & Patel, Jayendu & Zeckhauser, Richard, 1993. "Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974-1988," Journal of Finance, American Finance Association, vol. 48(1), pages 93-130, March.
    31. Agarwal, Vikas & Naik, Narayan Y., 2000. "Multi-Period Performance Persistence Analysis of Hedge Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 327-342, September.
    32. Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
    33. Agarwal, Vikas & Boyson, Nicole M. & Naik, Narayan Y., 2009. "Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 273-305, April.
    34. Craig Israelsen, 2005. "A refinement to the Sharpe ratio and information ratio," Journal of Asset Management, Palgrave Macmillan, vol. 5(6), pages 423-427, April.
    35. José Renato Haas Ornelas & Antônio Francisco Silva Júnior & José Luiz Barros Fernandes, 2012. "Yes, the choice of performance measure does matter for ranking of us mutual funds," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-72, January.
    36. Fung, William & Hsieh, David A., 2000. "Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 291-307, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin Eling, 2009. "Does Hedge Fund Performance Persist? Overview and New Empirical Evidence," European Financial Management, European Financial Management Association, vol. 15(2), pages 362-401, March.
    2. Vikas Agarwal & Vyacheslav Fos & Wei Jiang, 2013. "Inferring Reporting-Related Biases in Hedge Fund Databases from Hedge Fund Equity Holdings," Management Science, INFORMS, vol. 59(6), pages 1271-1289, June.
    3. Agarwal, Vikas & Fos, Vyacheslav & Jiang, Wei, 2012. "Inferring reporting biases in hedge fund databases from hedge fund equity holdings," CFR Working Papers 10-08 [rev.], University of Cologne, Centre for Financial Research (CFR).
    4. Grose, Chris & Dasilas, Apostolos & Alexakis, Christos, 2014. "Performance persistence in fixed interest funds: With an eye on the post-debt crisis period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 155-182.
    5. Luis Vicente & Luis Ferruz, 2005. "Performance persistence in Spanish equity funds," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1305-1313.
    6. Benoît Dewaele, 2013. "Portfolio Optimization for Hedge Funds through Time-Varying Coefficients," Working Papers CEB 13-032, ULB -- Universite Libre de Bruxelles.
    7. Martin Rohleder & Hendrik Scholz & Marco Wilkens, 2010. "Survivorship Bias and Mutual Fund Performance: Relevance, Significance, and Methodical Differences," Review of Finance, European Finance Association, vol. 15(2), pages 441-474.
    8. Benoît Dewaele, 2013. "Leverage and Alpha: The Case of Funds of Hedge Funds," Working Papers CEB 13-033, ULB -- Universite Libre de Bruxelles.
    9. Manuel Ammann & Otto Huber & Markus Schmid, 2013. "Hedge Fund Characteristics and Performance Persistence," European Financial Management, European Financial Management Association, vol. 19(2), pages 209-250, March.
    10. Andrew W. Lo & Mila Getmansky & Peter A. Lee, 2015. "Hedge Funds: A Dynamic Industry in Transition," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 483-577, December.
    11. Vidal-García, Javier, 2013. "The persistence of European mutual fund performance," Research in International Business and Finance, Elsevier, vol. 28(C), pages 45-67.
    12. Vidal-García, Javier & Vidal, Marta & Boubaker, Sabri & Uddin, Gazi Salah, 2016. "The short-term persistence of international mutual fund performance," Economic Modelling, Elsevier, vol. 52(PB), pages 926-938.
    13. Hung, Pi-Hsia & Lien, Donald & Kuo, Ming-Sin, 2020. "Window dressing in equity mutual funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 338-354.
    14. Matallín-Sáez, Juan Carlos & Soler-Domínguez, Amparo & Tortosa-Ausina, Emili, 2016. "On the robustness of persistence in mutual fund performance," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 192-231.
    15. Paulo Armada Leite & Maria Ceu Cortez, 2009. "Conditioning information in mutual fund performance evaluation: Portuguese evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 15(5-6), pages 585-605.
    16. Capocci, Daniel & Hubner, Georges, 2004. "Analysis of hedge fund performance," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 55-89, January.
    17. Eling, Martin & Faust, Roger, 2010. "The performance of hedge funds and mutual funds in emerging markets," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1993-2009, August.
    18. Amporn SOONGSWANG & Yosawee SANOHDONTREE, 2011. "Equity Mutual Fund: Performances, Persistence and Fund Rankings," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(6), pages 1-27, October.
    19. Deaves, Richard, 2004. "Data-conditioning biases, performance, persistence and flows: The case of Canadian equity funds," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 673-694, March.
    20. Agarwal, Vikas & Boyson, Nicole M. & Naik, Narayan Y., 2007. "Hedge funds for retail investors? An examination of hedged mutual funds," CFR Working Papers 07-04, University of Cologne, Centre for Financial Research (CFR).

    More about this item

    Keywords

    Alternative mutual funds; UCITS funds; Hedge funds; Performance measurement; Performance persistence;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:fmktpm:v:31:y:2017:i:1:d:10.1007_s11408-016-0283-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.