EconPapers    
Economics at your fingertips  
 

The Statistical Properties of Hedge Fund Index Returns

Chris Brooks and Harry Kat ()

No icma-dp2001-09, ICMA Centre Discussion Papers in Finance from Henley Business School, Reading University

Abstract: he monthly return distributions of many hedge fund indices exhibit highly unusual skewness and kurtosis properties as well as first-order serial correlation. This has important consequences for investors. We demonstrate that although hedge fund indices are highly attractive in mean-variance terms, this is much less the case when skewness, kurtosis and autocorrelation are taken into account. Sharpe Ratios will substantially overestimate the true risk-return performance of (portfolios containing) hedge funds. Similarly, mean-variance portfolio analysis will over-allocate to hedge funds and overestimate the attainable benefits from including hedge funds in an investment portfolio. We also find substantial differences between indices that aim to cover the same type of strategy. Investors' perceptions of hedge fund performance and value added will therefore strongly depend on the indices used.

Keywords: Hedge fund; hedge fund index; skewness; kurtosis; autocorrelation; sharpe ratio; mean-variance analysis (search for similar items in EconPapers)
Date: 2001-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24) Track citations by RSS feed

Published in Journal of Alternative Investments 5:2, 26-44

Downloads: (external link)
http://www.icmacentre.ac.uk/pdf/discussion/DP2001-09.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.icmacentre.ac.uk:443 (http://www.icmacentre.ac.uk/pdf/discussion/DP2001-09.pdf [302 Found]--> https://www.icmacentre.ac.uk/pdf/discussion/DP2001-09.pdf)

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:rdg:icmadp:icma-dp2001-09

Access Statistics for this paper

More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, Reading University Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().

 
Page updated 2019-09-18
Handle: RePEc:rdg:icmadp:icma-dp2001-09