Abstract
Hedge funds' extensive use of derivatives, short selling, and leverage and their dynamic trading strategies create significant nonnormalities in their return distributions. Hence, the traditional performance measures fail to provide an accurate characterization of the relative strength of hedge fund portfolios. This paper uses the utility-based nonparametric and parametric performance measures to determine which hedge fund strategies outperform the U.S. equity and/or bond markets. The results from the realized and simulated return distributions indicate that the long/short equity hedge and emerging markets hedge fund strategies outperform the U.S. equity market, and the long/short equity hedge, multistrategy, managed futures, and global macro hedge fund strategies dominate the U.S. Treasury market. This paper was accepted by Wei Jiang, finance.
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