EconPapers    
Economics at your fingertips  
 

The Necessity to Correct Hedge Fund Returns: Empirical Evidence and Correction Method

Georges Gallais-Hamonno and Thi Thanh Huyen Nguyen

No 07-034.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: We study two principal mechanisms suggested in the literature to correct the serial correlation in hedge fund returns and the impact of this correction on financial characteristics of their returns as well as on their risk level and on their performances. The methods of Geltner (1993), its extension by Okunev & White (2003) and that of Getmansky, Lo & Makarov (2004) are applied on a sample of 54 hedge fund indexes. The results show that the unsmoothing leaves the mean unchanged but increases significantly the risk level of hedge funds, whether the risk is measured in terms of the return standard-deviation or the modified VaR. Funds' absolute performances, measured by traditional Sharpe ratio and Omega index, decline considerably. By contrast, funds' rankings after the unsmoothing unexpectedly change slightly. However, some notable modifications in ranks of several funds are observed. The necessary transparency of the management practice requires that such a correction must be systematically done.

Keywords: hedge funds; smoothed returns; performance evaluation; Sharpe ratio; Omega index. (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Pages: 22 p.
Date: 2007
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations: Track citations by RSS feed

Published by:

Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/5394 ... ol_wpaper_07-034.pdf RePEc_sol_wpaper_07-034 (application/pdf)

Related works:
Working Paper: The necessity to correct hedge fund returns: empirical evidence and correction method (2007) Downloads
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:sol:wpaper:07-034

Ordering information: This working paper can be ordered from
http://hdl.handle.ne ... ulb.ac.be:2013/53942

Access Statistics for this paper

More papers in Working Papers CEB from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().

 
Page updated 2020-02-16
Handle: RePEc:sol:wpaper:07-034