Determinants of hedge fund performance during ‘good’ and ‘bad’ economic periods

Dimitrios Stafylas; Athanasios Andrikopoulos

doi:10.1016/j.ribaf.2019.101130

Determinants of hedge fund performance during ‘good’ and ‘bad’ economic periods

Dimitrios Stafylas, Athanasios Andrikopoulos

Research output: Contribution to journal › Article › peer-review

Abstract

We analyse the drivers of hedge fund performance, focusing simultaneously on fund size, age, lockup period, fund strategies, business cycles and different market conditions, dealing with the omitted variable bias. We use exogenous break points and a switching Markov model to endogenously determine different market conditions. We find that HFs deliver positive alpha only during “good” times, irrespective of their fundamentals. During “bad” times, they minimise their systematic risk. Small and young funds, and those with redemption restrictions deliver higher alpha compared to their peers during “good” times. Finally, specific strategies deliver significantly negative alpha during “bad” times.

Original language	English
Article number	101130
Journal	Research in International Business and Finance
Volume	52
Early online date	17 Nov 2019
DOIs	https://doi.org/10.1016/j.ribaf.2019.101130
Publication status	Published - Apr 2020

Bibliographical note

Keywords

Hedge fund performance
Hedge funds
Hedge funds characteristics

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10.1016/j.ribaf.2019.101130

Determinants of hedge fund performance
© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 4.05 MBLicence: CC BY-NC-ND 3.0

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title = "Determinants of hedge fund performance during {\textquoteleft}good{\textquoteright} and {\textquoteleft}bad{\textquoteright} economic periods",

abstract = "We analyse the drivers of hedge fund performance, focusing simultaneously on fund size, age, lockup period, fund strategies, business cycles and different market conditions, dealing with the omitted variable bias. We use exogenous break points and a switching Markov model to endogenously determine different market conditions. We find that HFs deliver positive alpha only during “good” times, irrespective of their fundamentals. During “bad” times, they minimise their systematic risk. Small and young funds, and those with redemption restrictions deliver higher alpha compared to their peers during “good” times. Finally, specific strategies deliver significantly negative alpha during “bad” times.",

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AU - Andrikopoulos, Athanasios

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N2 - We analyse the drivers of hedge fund performance, focusing simultaneously on fund size, age, lockup period, fund strategies, business cycles and different market conditions, dealing with the omitted variable bias. We use exogenous break points and a switching Markov model to endogenously determine different market conditions. We find that HFs deliver positive alpha only during “good” times, irrespective of their fundamentals. During “bad” times, they minimise their systematic risk. Small and young funds, and those with redemption restrictions deliver higher alpha compared to their peers during “good” times. Finally, specific strategies deliver significantly negative alpha during “bad” times.

AB - We analyse the drivers of hedge fund performance, focusing simultaneously on fund size, age, lockup period, fund strategies, business cycles and different market conditions, dealing with the omitted variable bias. We use exogenous break points and a switching Markov model to endogenously determine different market conditions. We find that HFs deliver positive alpha only during “good” times, irrespective of their fundamentals. During “bad” times, they minimise their systematic risk. Small and young funds, and those with redemption restrictions deliver higher alpha compared to their peers during “good” times. Finally, specific strategies deliver significantly negative alpha during “bad” times.

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KW - Hedge funds

KW - Hedge funds characteristics

UR - https://linkinghub.elsevier.com/retrieve/pii/S027553191930563X

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DO - 10.1016/j.ribaf.2019.101130

M3 - Article

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JO - Research in International Business and Finance

JF - Research in International Business and Finance

M1 - 101130

ER -

Determinants of hedge fund performance during ‘good’ and ‘bad’ economic periods

Abstract

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