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Review of Research
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Indexes
Jacobson Fund Managers. This paper examines several strategies for investing in investable hedge fund indices. The investing strategies studied involve equally weighted buy and hold portfolios, portfolios formed on the basis of cumulative returns (with the use of a simple momentum and contra/reversal models), and portfolios formed on the basis of the Rachev ratio (with the use of simple momentum and contra/reversal models). For each strategy the authors observe heterogeneity in the returns displayed by the different indices provided by FTSE, HFR, MSCI Lyxor and Standard and Poor’s, with a calculation period from January 1998 to September 2004. More...
16/03/05

Indexes
G. Bousbib, P. Ewing, E. Zask.The hedge fund industry is reputed to offer absolute returns. The notion of absolute returns excludes their comparison to the performance of a benchmark. Nevertheless, according to the authors, the use of a benchmark becomes increasingly important in bearish market conditions. In bullish markets, when the returns are high, investors and managers are less prone to identifying the source of the performance, i.e the alpha or the beta. When poor returns are generated, the comparison between the performance displayed by actively managed hedge funds and the performance of passive indices is crucial. More...
17/11/04

Indexes
Lars Jaeger. This paper gives a succinct overview of hedge fund indices. According to the author, the heterogeneity of the indices is due to the heterogeneity of the construction criteria, such as weighting schemes or fund selection. He illustrates this heterogeneity by the fact that in 2003 the HFR Composite index displayed a return of 19.6%, which differed widely from the 11% displayed by the S&P Hedge Fund Index, even though those two indices are supposed to represent the same universe. More...
13/07/04

Indexes
Majed R. Muhtaseb. This article deals with investable hedge fund indices. Theoretical shortcomings and practical challenges are examined. Concerning theoretical shortcomings, the author weighs up whether hedge funds constitute an asset class or not. As far as the practical challenges are concerned, the viability of the construction of an investable benchmark is studied. More...
26/04/04

Indexes
William Fung and David A. Hsieh. The weighting scheme in a hedge fund index is problematical. In the traditional universe, indexes are mainly equally-weighted or value-weighted. However, according to Fung and Hsieh, these weighting schemes are not suitable in the case of hedge funds. Consequently, the authors introduce a new approach, by identifying several risk factors. More...
21/04/04

Indexes
Dr. P. Meier, Dr. A. Ruckstuhl, O. Kündig and S. Lodeiro. This study focuses on 4 index providers in the alternative universe: Tuna, HFR, Altvest and VAN. For each of these providers, both hedge fund indices and fund of hedge fund indices are examined. This approach permits the statistical properties obtained through the two index construction methodologies to be compared. More...
09/04/04

Indexes
M. Anson. Since institutional investors use relative returns in their investment process, there is a requirement for index construction in the hedge fund industry, like in the traditional universe. However, the construction of hedge fund indexes is complex. This is due to the uncertainty on the size of the hedge fund universe, the biases that affect the data, the strategy classification of the hedge funds and the need for investable indexes. Key attributes of 10 hedge fund indexes are also provided. More...
02/04/04

Indexes
A. Kohler. This paper highlights the difficulty of implementing an index-based approach in the hedge fund industry. A distinction is made between the theoretical shortcomings and the practical challenges. Due to the specific characteristics of the hedge fund industry, hedge fund indexing is not a simple application of the methodology used in the traditional universe. More...
01/04/04

Indexes
William Fung, David A. Hsieh. The market turmoil that has prevailed for the last three years highlighted the necessity for private and institutional investors to follow well diversified investment strategies. Since alternative investment strategies are marketed as being able to post exceptional performances in bull and bear markets, an ever growing number of investors are increasing their allocation to hedge funds. However, it is well known that information concerning hedge funds is scarce and that data vendors cannot cope with this incomplete information without generating potential measurement biases. Do hedge funds still post remarkable performances after accounting for these biases? Is it possible to get a true and fair evaluation of hedge fund performance despite the presence of measurement biases? These are the two problems the authors address in this article. More...
29/04/03

Indexes
Bing Liang. While all investors are aware that measurement biases such as the survivorship bias may affect the performance of hedge fund indexes, they do not necessarily know that the magnitude of these biases is directly related to the specific characteristics of the databases. As a result, the impact of measurement biases may differ across databases. The author endeavours to shed some light on this issue by comparing two databases, namely TASS and HFR. This article not only shows that the survivorship bias differs across databases but also across investment styles within a given database. More...
02/04/03

Indexes
Clifford S. Asness, Robert Krail, John M. Liew. Since information on hedge funds is scarce, investors may be compelled to rely solely on hedge fund indexes to measure performance and/or allocate capital to alternative investment strategies. The authors argue that investors should be very cautious in doing so, as non-synchronous movement in returns may lead to an underestimation of volatility and an overestimation of the diversification benefits of alternative investment strategies. The analysis consists of using regressions of CSFB and HFR hedge fund index returns from January 1994 through to September 2000 on both contemporaneous and lagged market returns. More...
02/04/03

Indexes
Ross Barry. It is well known that hedge funds’ indexes inherit measurement biases from the databases they rest on. As a consequence, it is particularly important to be well aware of the origin and the consequence of potential measurement biases in commercially available databases. This article offers an interesting insight with respect to these issues. The analysis focuses on two biases, namely the survivorship and instant history biases. It consists of a study of the TASS database from 1994 to 2001. More...
27/03/03

Indexes
Leola B. Ross, George Oberhofer. Hedge funds are poorly regulated investment funds. As a result, they follow very heterogeneous investment strategies. The authors argue that broad based indexes cannot reflect this diversity and may mask interesting features. Hence, conclusions drawn from style universe data may not be representative of individual funds. This must be taken into account in performance evaluation and/or allocation processes. More...
27/03/03

Indexes
Jimmy Liew. Hedge fund investing is gaining acceptance from an increasing number of investors but still remains the privilege of High Net Worth Individuals and Institutional Investors. Consequently, as many hedge fund indexes have been launched on the market during the last 10 years, many investors are thinking about gaining exposure to hedge funds through hedge fund index investing. In this article, the author asks if this solution is a good alternative to actively managed funds of funds. More...
27/03/03

Indexes
Gaurav S. Amin, Harry M. Kat. Hedge funds charge investors with high incentive fees (15% to 25%). Nevertheless, the lack of transparency surrounding hedge funds makes it difficult to assess to which extent they add value. The authors try to shed some light on this important issue by measuring the performance of hedge funds on a stand alone basis as well as in a portfolio. More...
27/03/03

Indexes
Chris Brooks, Harry M. Kat. This article is of great interest for investors willing to invest in hedge funds. It suggests that investors should be very cautious when analysing hedge funds’ performance since their unique characteristics have strong implications for portfolio analysis. More...
27/03/03

Indexes
William Fung, David A. Hsieh. The authors question the quality of the information published by the hedge fund indexes available on the market. Their theory is that these indexes inherit the measurement biases of the databases they are built from. Consequently, one should be cautious when assessing hedge funds’ performances. More...
26/03/03

 
   
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