Abstract
The focus of the study is to provide a detailed account of how various strategy-specific or composite hedge fund indices have performed in the past. The study analyses returns (monthly) of different hedge funds. The study selected popular categories of Hedge fund index against DJIA (Dow Jones Industrial Average) and Credit Suisse Hedge Fund Index. The Data is taken from January 1994 to December 2018 and is taken from Credit Suisse Hedge fund database. The study finds that most hedge fund indices witness a drop in returns over time, and most hedge funds do not provide additional diversification benefits with respect to traditional asset class. On a risk-adjusted basis, majority of hedge fund indices out-perform the broader equity market, risk-adjusted performances of various hedge fund strategies, does not change drastically with use of different risk-adjusted measures. As opposed to prevalent studies like Atil, Bali and Demirtas [1] [2], indicating Equity market neutral hedge fund index as the best performer in terms of risk-adjusted returns, the current study finds Event Driven Distressed hedge fund Index as the best performer.
Highlights
A Hedge Fund is an unregulated mutual fund and charges fee as rule of 2 and 20
Credit Suisse hedge fund index, which is a composite of all hedge fund strategies, has a Calmar ratio of 0.0278 and is ranked 3rd, indicating a relatively low liquidity risk arising from redemption
It is observed that hedge fund index returns deviate from normal distribution as they have a high degree of left skewness and leptokurtosis, with exception of dedicated short bias hedge fund, which has right-skewness and platy kurtosis
Summary
A Hedge Fund is an unregulated mutual fund and charges fee as rule of 2 and 20. It refers to a typical fee arrangement of hedge funds where the annual management fee of 2% and profit sharing fee of 20%. Alfred Winslow Jones was the first hedge fund manager, with his first for profit hedge fund. Gupta mance linked fees (20% of profit) but no asset management fee. He combined long positions in undervalued stocks and short positions in overvalued ones. This allowed him to make at least a small net profit in every market condition, while reducing the overall risk through a smaller net market exposure. This study aims to analyze risk and return of select top hedge funds indices (as per their Asset under management-AUM) along with that of market index. This study is aimed at analysing the risk-adjusted performance of various strategy-specific and composite hedge fund indices
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