Abstract
The decades of 1990s and 2000s in Japan are periods of economic stagnation and price deflation or the ‘lost 20’. Stock market has been anemic while the bond market has underperformed most developed markets. Hedge Funds (HFs) have played an extremely important role over the last two decades in Japan by forcing firms to increase distributions and making changes required to increase firm value. This paper looks at the performance of HFs in Japan using survivor bias free Eurkeahedge HF Index from January 2000 to September 2018 and compares them to Japanese stocks, bonds, and real estate. We find that HFs have significantly outperformed stocks and bonds but underperformed real estate. However, risk-adjusted performance (Sharpe, Sortino, and Omega Ratios) of HFs was much better compared to all other asset classes. HFs also had the smallest maximum drawdown, the shortest recovery period and have created the most wealth. HFs also had significantly positive alpha. Overall, results indicate that HFs in Japan have created lot of value compared to Japanese stocks and bonds.
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