Hostname: page-component-78c5997874-ndw9j Total loading time: 0 Render date: 2024-11-14T22:03:49.670Z Has data issue: false hasContentIssue false
  • English
  • Français

Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases

Published online by Cambridge University Press:  06 April 2009

William Fung  and
David A. Hsieh
Get access Rights & Permissions [Opens in a new window]

Abstract

It is well known that the pro forma performance of a sample of investment funds contains biases. These biases are documented in Brown, Goetzmann, Ibbotson, and Ross (1992) using mutual funds as subjects. The organization structure of hedge funds, as private and often offshore vehicles, makes data collection a much more onerous task, amplifying the impact of performance measurement biases. Theis paper reviews these biases in hedge funds. We also propose using funds-of-hedge funds to measure aggregate hedge fund performance, based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 291 - 307
Copyright
Copyright © School of Business Administration, University of Washington 2000

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Fung, Partner, PI Asset Management LLC, Garden City, NY 11530; and Hsieh, Fuqua School of Business, Duke University, Box 90120, Durham, NC 27708. The authors acknowledge research support from the Duke Global Capital Markets Center and helpful comments from Howard Wohl, Stephen Brown (the editor), David Ravenscraft, and an anonymous referee.

References

Ackerman, C.; McNally, R.; and Ravenscraft, D.. “The Performance of Hedge Funds: Risk, Return and Incentive.” Journal of Finance, 54 (1999), 833–874.10.1111/0022-1082.00129CrossRefGoogle Scholar
Brown, S. J.; Goetzmann, W.; and Ibbotson, R.. “Offshore Hedge Funds: Survival and Performance 1989–1995.” Journal of Business, 72 (1999), 91–118.10.1086/209603CrossRefGoogle Scholar
Brown, S. J.; Goetzmann, W.; and Ibbotson, R. G.; and Ross, S. A.. “Survivorship Bias in Performance Studies.” Review of Financial Studies, 5 (1992), 553–580.10.1093/rfs/5.4.553CrossRefGoogle Scholar
Brown, S. J.; Goetzmann, W.; and Park, J.. “Conditions for Survival: Changing Risk and the Performance of Hedge Fund Managers and CTAs.” Working Paper, New York Univ. Stern School of Business, Yale School of Management, and Long Island Univ. (1997).Google Scholar
Diz, F. “CTA Survivor and Nonsurvivor: An Analysis of Relative Performance.” Journal of Alternative Investments, 2 (1999), 57–71.10.3905/jai.1999.318918CrossRefGoogle Scholar
Edwards, F. R., and Liew, J.. “Managed Commodity Funds.” Journal of Futures Markets, 19 (1999), 377–411.10.1002/(SICI)1096-9934(199906)19:4<377::AID-FUT1>3.0.CO;2-33.0.CO;2-3>CrossRefGoogle Scholar
Edwards, F. R., and Ma, C.. “Commodity Pool Performance: Is the Information Contained in Pool Prospectuses Useful?” Journal of Futures Markets, 8 (1988), 589–616.10.1002/fut.3990080506CrossRefGoogle Scholar
Eichengreen, B.; Mathieson, D.; Chadha, B.; Jansen, A.; Kodres, L.; and Sharma, S.. Hedge Fund and Financial Market Dynamics. Occasional Paper No. 166, Washington, DC: International Monetary Fund (1998).Google Scholar
Elton, E. J.; Gruber, M. J.; and Rentzler, J.. “The Performance of Publicly Offered Commodity Funds.” Financial Analysts Journal, 46 (1990), 23–30.10.2469/faj.v46.n4.23CrossRefGoogle Scholar
Fung, W., and Hsieh, D. A.. “Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds.” Review of Financial Studies, 10 (1997a), 275–302.10.1093/rfs/10.2.275CrossRefGoogle Scholar
Fung, W., and Hsieh, D. A.. “Investment Style and Survivorship Bias in the Returns of CTAs: The Information Content of Track Records.” Journal of Portfolio Management, 24 (1997b), 30–41.10.3905/jpm.1997.409630CrossRefGoogle Scholar
Fung, W., and Hsieh, D. A.. “The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers.” Review of Financial Studies, 13 (forthcoming 2000).Google Scholar
Grinblatt, M., and Titman, S.. “Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings.” Journal of Business, 62 (1989), 393–416.10.1086/296468Google Scholar
Irwin, S. H.; Krukemyer, T. R.; and Zulauf, C. R.. “Investment Performance of Public Commodity Pools: 1979–1990.” Journal of Futures Markets, 13 (1993), 799–820.10.1002/fut.3990130707CrossRefGoogle Scholar
Liang, B. “Hedge Funds: the Living and the Dead.” Journal of Financial and Quantitative Analysis, 35 (2000), 309–326.10.2307/2676206S0022109000009200CrossRefGoogle Scholar
Malkiel, B. “Returns from Investing in Equity Mutual Funds 1971 to 1991.” Journal of Finance, 50 (1995), 549–572.10.2307/2329419CrossRefGoogle Scholar
Park, J. Managed Futures as an Investment Set. Ph.D. Diss., Columbia Univ. (1995).Google Scholar
Schneeweis, T., and Spurgin, R.. “Mutlifactor Analysis of Hedge Fund, Managed Futures, and Mutual Fund Return and Risk Characteristics.” Journal of Alternative Investments, 1 (1998), 1–24.10.3905/jai.1998.407852CrossRefGoogle Scholar
Schneeweis, T.; Spurgin, R.; and McCarthy, D.. “Survivor Bias in Commodity Trading Advisor Performance.” Journal of Futures Markets, 16 (1996), 757–772.10.1002/(SICI)1096-9934(199610)16:7<757::AID-FUT2>3.0.CO;2-N3.0.CO;2-N>CrossRefGoogle Scholar