Abstract
This article evaluates whether risk taking decisions of Brazilian hedge funds are influenced by past performance. More specifically, it is evaluated whether changes in funds volatility from one semester to the following are related to performance in terms of returns relative to its peers. The methodology for carrying out this analysis is discussed, based on Brazilian and international articles on the subject and data for funds included in ANDIMA’s Hedge Fund Index (IHFA). Using a proposed normalization calculation, it is concluded that risk taking decisions of Brazilian hedge funds are not influenced by past performance. This conclusion contrasts with that of Brown, Goetzmann and Park (2001) and Franco and Castello Branco (2006), who conclude that performance relative to its peers is relevant to the risk taking decisions of US hedge funds and CTAs and of Brazilian hedge funds.
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