Are Investable Hedge Fund Indices Holding Their Promise?

Abstract

The goal of the paper is to assess if investable hedge fund indices exhibit similar characteristics as their non-investable benchmark indices. For all of our risk-adjusted performances metrics, we find that the investable indices perform worse than their corresponding benchmarks whatever the sample period studied. Having said that, for some aggressive risk profiles, the choice of these investment vehicles may prove adequate, but clearly, the choice should not be driven by either absolute performance or liquidity reasons