Abstract
We evaluate the investment performance of hedge funds using an asset pricing model that is characterized by a piecewise-linear stochastic discount factor, and which we estimate using the generalized method of moments by minimizing the Hansen–Jagannathan distance. Our results show that, once non-linearities and public information are taken into account, there is only evidence of positive performance for the overall hedge fund index, equity-market neutral strategy and the global macro strategy.
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