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The performance and diversification benefits of funds of hedge funds
Author(s)
Date Issued
2004
Date Available
2009-06-15T13:21:29Z
Abstract
We examine the performance and diversification potential of 332 funds of hedge funds (FOHFs) for the period from January 1990 to May 2003. Consistent with prior studies, we find that FOHFs appear to underperform the hedge fund index on a risk-adjusted basis. However, FOHFs have characteristics that offset their apparent underperformance. Their returns do not suffer from negative skewness that is a feature of many hedge fund strategies.
In addition, we find that FOHFs have lower correlations (than the hedge fund index) with stock indices in both bull and bear markets, making them a better diversification tool in equity portfolios. For bond portfolios, however, FOHFs have no diversification advantage over hedge fund indexing.
Type of Material
Working Paper
Publisher
University College Dublin. School of Business. Centre for Financial Markets
Series
Centre for Financial Markets working paper series
WP-04-13
Copyright (Published Version)
2004, Centre for Financial Markets
Classification
G11
G15
Subject – LCSH
Hedge funds--Evaluation
Investments--Evaluation
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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