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 the 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 the aggregate database than from some of the individual commercial databases. Although hedge funds deliver performance persistence, the average fund does 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.
Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?
For helpful comments we would like to thank an anonymous Referee, Vikas Agarwal, Andrew Patton, Turan Bali, Bill Fung, Brun Gerard, Petri Jylhä, Bing Liang, Marco Navone, Arjen Siegmann, Ivo Welch (Editor), and Russ Wermers as well as participants at the Office of Financial Research, CREST 4th Annual Hedge Fund Conference (Paris, 2012), the Peking University seminar, EFMA Annual Meetings (2013, Reading), and the GSF summer workshop in Helsinki (2011). This paper was previously circulated under the titles: “Hedge Fund Performance: What Do We Know?” and “New ‘Stylized Facts’ About Hedge Funds and Database Selection Bias.” We would also like to thank PerTrac (currently eVest-ment) for providing us with access to the PerTrac Analytical Platform. We are grateful for the support of OP-Pohjola Group Research Foundation and Academy of Finland. The usual disclaimer applies.
Joenväärä J, Kauppila M, Kosowski R, Tolonen P (2021), "Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?". Critical Finance Review, Vol. 10 No. 2 pp. 271–327, doi: https://doi.org/10.1561/104.00000104
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