Downside risk and hedge fund returns

Christos Argyropoulos, Ekaterini Panopoulou and Spyridon Vrontos

Journal of Banking & Finance, 2025, vol. 171, issue C

Abstract: This study compares the predictive power of downside risk for hedge funds and fund of hedge funds returns. We find a positive relationship between downside risk and return for hedge funds but not for funds of hedge funds. This result is robust to the downside risk measure employed and additional control variables. Furthermore, we find that funds of hedge funds perform significantly worse than hedge funds during adverse equity market regimes, exhibiting an inverse (negative) risk–return relationship. Finally, we form realistic portfolios to determine whether an investor can construct a portfolio that outperforms the average fund of hedge funds. These portfolios display superior risk-adjusted performance and rank among the top performers of funds of hedge funds in our sample.

Keywords: Hedge funds; Funds of hedge funds; Downside risk; Optimal diversification strategies (search for similar items in EconPapers)
JEL-codes: C58 G11 G23 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426624002590
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:171:y:2025:i:c:s0378426624002590

DOI: 10.1016/j.jbankfin.2024.107345

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().