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Performance Measurement of Hedge Fund Indices - Does the Measure Matter?

In: Operations Research Proceedings 2005

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  • Martin Eling

    (University of St. Gallen)

  • Frank Schuhmacher

    (University of Leipzig)

Abstract

Conclusion It does not matter too much which performance measure one chooses to evaluate hedge funds. Because the newer performance measurement approaches result in rankings that are the same and thus result in the same assessments of hedge funds, use of the classic Sharpe ratio (even if it displays some undesirable features) is justified, at least from a practical perspective. The results of this study will be helpful for investing in hedge funds that are constructed like indices. However, an important question is whether the choice of a specific performance measure matters when evaluating single hedge funds. The findings of the current study have motivated us to procure return data for single hedge funds in order to analyse this question in the future. However, the indices we examined in this paper appear to be representative for single hedge funds insofar as the return distributions deviate significantly from a normal distribution. Another question not answered in this study is the relevance of performance measures that are evolved on the basis of correlations, such as the Jensen, Treynor and Treynor-Black measures. This question should also be examined in future studies.

Suggested Citation

  • Martin Eling & Frank Schuhmacher, 2006. "Performance Measurement of Hedge Fund Indices - Does the Measure Matter?," Operations Research Proceedings, in: Hans-Dietrich Haasis & Herbert Kopfer & Jörn Schönberger (ed.), Operations Research Proceedings 2005, pages 205-210, Springer.
    • Handle: RePEc:spr:oprchp:978-3-540-32539-0_33
    DOI: 10.1007/3-540-32539-5_33
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    Cited by:

    1. Claudio Giannotti & Gianluca Mattarocci, 2013. "The Role of Risk Measures Choices in Ranking Real Estate Funds: Evidence from the Italian Market," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Alessandro Carretta & Gianluca Mattarocci (ed.), Asset Pricing, Real Estate and Public Finance over the Crisis, chapter 10, pages 165-189, Palgrave Macmillan.

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