Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds

Abstract This article examines the effect of regulatory constraints on fund performance and risk by comparing conventional and UCITS hedge funds. Using a matching estimator approach, we estimate the indirect cost of UCITS regulation to be between 1.06% and 4.05% per annum in terms of risk-adjusted returns. These performance differences are likely to stem from UCITS constraints such as those governing eligible assets, diversification, and short selling, and cannot be explained by differences in redemption terms or level of leverage. We confirm that our performance results are not driven by management company characteristics, fund manager characteristics, or unobserved confounder bias.

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New Evidence On Hedge Fund Performance Measures

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v8i11.3189 ◽

2011 ◽

Vol 8 (11) ◽

Author(s):

Komlan Sedzro

Keyword(s):

Data Envelopment Analysis ◽

Performance Measures ◽

Hedge Funds ◽

Hedge Fund ◽

Fund Performance ◽

Sharpe Ratio ◽

Data Envelopment ◽

Sharpe Ratios ◽

Hedge Fund Performance ◽

New Evidence

Hedge funds are still relatively unfamiliar to most investors despite the intense popularity they have enjoyed in recent years. Measuring the performance of these financial instruments using traditional methods is, however, problematic, since their returns do not follow a normal distribution. In this study, we consider rankings obtained with the Stochastic Dominance (SD) method and compare them with ranks produced using Sharpe Ratios, Modified Sharpe Ratios, and Data Envelopment Analysis. We also explore the advantages highlighted by the literature of the Data Envelopment Analysis (DEA) method in relation to traditional measures like Sharpe ratio and Modified Sharpe ratio. Our results show that classic performance measures are better correlated with SD than DEA results.

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Fund Performance and Social Responsibility: New Evidence using Social Active Share and Social Tracking Error

SSRN Electronic Journal ◽

10.2139/ssrn.3489201 ◽

2019 ◽

Author(s):

Sadok El Ghoul ◽

Aymen Karoui

Keyword(s):

Social Responsibility ◽

Tracking Error ◽

Fund Performance ◽

New Evidence

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Financial Industry Affiliation and Hedge Fund Performance

Management Science ◽

10.1287/mnsc.2020.3864 ◽

2021 ◽

Author(s):

Lingling Zheng ◽

Xuemin (Sterling) Yan

Keyword(s):

Initial Public Offerings ◽

Hedge Funds ◽

Negative Impact ◽

Hedge Fund ◽

Seasoned Equity Offerings ◽

Fund Performance ◽

Financial Industry ◽

Internal Conflicts ◽

Industry Affiliation ◽

Hedge Fund Performance

Affiliation with a financial conglomerate may provide hedge funds with superior information about the conglomerate’s lending, investment banking, and brokerage clients; such affiliation can also lead to potential conflicts with the other units of the conglomerate and exacerbate the conflict between hedge fund companies and hedge fund investors. We find that affiliated funds significantly underperform unaffiliated funds. A difference-in-difference analysis confirms the negative relation between financial industry affiliation and hedge fund performance. Affiliated funds pursue asset-gathering strategies, overweight their conducted initial public offerings/seasoned equity offerings clients’ stocks, are more likely to commit legal and regulatory violations, and tend to exhibit a greater number of internal conflicts. Our results are consistent with conflict of interest exerting a negative impact on the performance of affiliated hedge funds. However, it is possible that lack of skill also contributes to the underperformance of affiliated funds. This paper was accepted by Karl Diether, finance.

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Hedge Fund Performance Using Scaled Sharpe And Treynor Measures

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v13i6.8920 ◽

2014 ◽

Vol 13 (6) ◽

pp. 1261

Author(s):

Francois Van Dyk ◽

Gary Van Vuuren ◽

Andre Heymans

Keyword(s):

Hedge Funds ◽

Performance Metrics ◽

Estimation Error ◽

Investment Decision ◽

Hedge Fund ◽

Fund Performance ◽

Performance Measure ◽

Sharpe Ratio ◽

Investment Funds ◽

Additional Information

The Sharpe ratio is widely used as a performance measure for traditional (i.e., long only) investment funds, but because it is based on mean-variance theory, it only considers the first two moments of a return distribution. It is, therefore, not suited for evaluating funds characterised by complex, asymmetric, highly-skewed return distributions such as hedge funds. It is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for new and additional fund performance metrics. The monthly returns of 184 international long/short (equity) hedge funds from four geographical investment mandates were examined over an 11-year period.This study contributes to recent research on alternative performance measures to the Sharpe ratio and specifically assesses whether a scaled-version of the classic Sharpe ratio should augment the use of the Sharpe ratio when evaluating hedge fund risk and in the investment decision-making process. A scaled Treynor ratio is also compared to the traditional Treynor ratio. The classic and scaled versions of the Sharpe and Treynor ratios were estimated on a 36-month rolling basis to ascertain whether the scaled ratios do indeed provide useful additional information to investors to that provided solely by the classic, non-scaled ratios.

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Style and Skill: Hedge Funds, Mutual Funds, and Momentum

Management Science ◽

10.1287/mnsc.2019.3433 ◽

2020 ◽

Vol 66 (12) ◽

pp. 5505-5531 ◽

Cited By ~ 2

Author(s):

Mark Grinblatt ◽

Gergana Jostova ◽

Lubomir Petrasek ◽

Alexander Philipov

Keyword(s):

Mutual Funds ◽

Hedge Funds ◽

Mutual Fund ◽

Hedge Fund ◽

Fund Performance ◽

Short Sales ◽

Fund Managers ◽

Liquidity Provision ◽

Stock Picking ◽

Hedge Fund Performance

Classifying mandatory 13F stockholding filings by manager type reveals that hedge fund strategies are mostly contrarian, and mutual fund strategies are largely trend following. The only institutional performers—the two thirds of hedge fund managers that are contrarian—earn alpha of 2.4% per year. Contrarian hedge fund managers tend to trade profitably with all other manager types, especially when purchasing stocks from momentum-oriented hedge and mutual fund managers. Superior contrarian hedge fund performance exhibits persistence and stems from stock-picking ability rather than liquidity provision. Aggregate short sales further support these conclusions about the style and skill of various fund manager types. This paper was accepted by Tyler Shumway, finance.

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Home Bias and Local Contagion: Evidence from Funds of Hedge Funds

Review of Financial Studies ◽

10.1093/rfs/hhz138 ◽

2019 ◽

Vol 33 (10) ◽

pp. 4771-4810 ◽

Cited By ~ 1

Author(s):

Clemens Sialm ◽

Zheng Sun ◽

Lu Zheng

Keyword(s):

Market Segmentation ◽

Hedge Funds ◽

Hedge Fund ◽

Home Bias ◽

Fund Performance ◽

Superior Performance ◽

Local Bias ◽

Funds Of Hedge Funds ◽

Hedge Fund Performance ◽

Funds Of Funds

Abstract Our paper analyzes the geographical preferences of hedge fund investors and the implication of these preferences for hedge fund performance. We find that funds of hedge funds overweigh their investments in hedge funds located in the same geographical areas and that funds with a stronger local bias exhibit superior performance. Local bias also gives rise to excess flow comovement and extreme return clustering within geographic areas. Overall, our results suggest that while funds of funds benefit from local advantages, their local bias also creates market segmentation that can destabilize the underlying hedge funds.

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Can Liquidity Risk Explain Diseconomies of Scale in Hedge Funds?

Quarterly Journal of Finance ◽

10.1142/s2010139217500021 ◽

2017 ◽

Vol 07 (02) ◽

pp. 1750002

Author(s):

Hany A. Shawky ◽

Ying Wang

Keyword(s):

Hedge Funds ◽

Hedge Fund ◽

Liquidity Risk ◽

Fund Performance ◽

Diseconomies Of Scale ◽

Liquidity Crises ◽

Using Data ◽

Asset Size ◽

Hedge Fund Performance

Using data from the Lipper TASS hedge fund database over the period 1994–2012, we examine the role of liquidity risk in explaining the relation between asset size and hedge fund performance. While a significant negative size-performance relation exists for all hedge funds, once we stratify our sample by liquidity risk, we find that such a relationship only exists among funds with the highest liquidity risk. Liquidity risk is found to be another important source of diseconomies of scale in the hedge fund industry. Evidently, for high liquidity risk funds, large funds are less able to recover from the relatively more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small funds.

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