Alpha or beta in the eye of the beholder: What drives hedge fund flows?

Vikas Agarwal, Tracy Clifton Green and Honglin Ren

No 15-08, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: CAPM alpha explains hedge fund flows better than alphas from more sophisticated models. This suggests that investors pool together sophisticated model alpha with returns from exposures to traditional (except for the market) and exotic risks. We decompose performance into traditional and exotic risk components and find that while investors chase both components, they place greater relative emphasis on returns associated with exotic risk exposures that can only be obtained through hedge funds. However, we find little evidence of persistence in performance from traditional or exotic risks, which cautions against investors' practice of seeking out risk exposures following periods of recent success.

Keywords: Hedge Funds; Investor Flows; Alpha; Alternative Beta; Exotic Beta (search for similar items in EconPapers)
JEL-codes: G11 G20 (search for similar items in EconPapers)
Date: 2017, Revised 2017
New Economics Papers: this item is included in nep-fmk and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1508

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