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Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?

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  • Kosowski, Robert
  • Joenväärä, Juha
  • Kaupila, Mikko
  • Tolonen, Pekka

Abstract

This paper proposes a novel database merging approach and re-examines the fundamental questions regarding hedge fund performance. Before drawing conclusions about fund performance, we form an aggregate database by exploiting all available information across and within seven commercial databases so that widest possible data coverage is obtained and the effect of data biases is mitigated. Average performance is significantly lower but more persistent when these conclusions are inferred from aggregate database than from some of the individual commercial databases. Although hedge funds deliver performance persistence, an average fund or industry as a whole do not deliver significant risk-adjusted net-of-fee returns while the gross-of-fee returns remain significantly positive. Consistent with previous literature, we find a significant association between fund-characteristics related to share restrictions as well as compensation structure and risk-adjusted returns.

Suggested Citation

  • Kosowski, Robert & Joenväärä, Juha & Kaupila, Mikko & Tolonen, Pekka, 2019. "Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?," CEPR Discussion Papers 13618, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13618
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    Cited by:

    1. Itzhak Ben-David & Justin Birru & Andrea Rossi, 2020. "The Performance of Hedge Fund Performance Fees," NBER Working Papers 27454, National Bureau of Economic Research, Inc.
    2. Ekaterini Panopoulou & Nikolaos Voukelatos, 2022. "Should hedge funds deviate from the benchmark?," Financial Management, Financial Management Association International, vol. 51(3), pages 767-795, September.
    3. Daniel Barth & Juha Joenvaara & Mikko Kauppila & Russ Wermers, 2020. "The Hedge Fund Industry is Bigger (and has Performed Better) Than You Think," Working Papers 20-01, Office of Financial Research, US Department of the Treasury.

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    More about this item

    Keywords

    Hedge fund performance; Persistence; Sample selection bias; Managerial skill;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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