Empirische Analyse der Drawdowns von Dach-Hedgefonds

Thomas Heidorn, Dieter G. Kaiser and Christoph Roder

No 109, Frankfurt School - Working Paper Series from Frankfurt School of Finance and Management

Abstract: Funds of Hedge Funds (FHF) are perceived to be the premier choice of institutional investors for first-time allocations into the alternative investment asset class. While many papers cover the bright side of FHF investing, we in this paper empirically investigate the maximum drawdowns of FHF. Therefore, we analyze time series and descriptive variables of 649 FHF drawn from the Lipper TASS Hedge Fund database for the time period January 1996 to August 2007. Our empirical results suggest that (1) the number as well as the magnitude of drawdowns decreases with increasing experience of the FHF, (2) the average recovery is higher with older FHF, (3) there is no difference in the magnitude of a maximum drawdown between small and large FHF, (4) the higher a maximum drawdown of an FHF the longer it takes to recover, and (5) most of the maximum drawdowns happen at times of turmoil in financial markets. Therefore our findings especially question the acclaimed ability of FHF to deliver absolute returns and also show that the beta risks involved with FHF are high. The advantages of FHF should thus rather be their low long-term correlations to traditional asset classes as well as their low volatility.

Keywords: Funds of hedge funds; size; age; experience; assets under management; maximum drawdown; recovery time (search for similar items in EconPapers)
JEL-codes: G11 G15 G24 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fsfmwp:109

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