An Excursion Into the Performance Characterstics of Hedge Funds

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In this paper the authors provide an overview of the most important properties of individual hedge fund returns.  The net-of-fees monthly returns of the average individual hedge fund exhibit significant skewness, excess kurtosis, as well as positive first-order serial correlation.

Authors: Harry M. Kat, Ph.D., Sa Lu

In this paper the authors provide an overview of the most important properties of individual hedge fund returns.  The net-of-fees monthly returns of the average individual hedge fund exhibit significant skewness, excess kurtosis, as well as positive first-order serial correlation.  The correlations between hedge funds in the same strategy group are of a similar order of magnitude as the correlations between funds in different strategy groups and relatively low.  Only 10 - 20% of the variation in the average individual hedge fund return  can be explained by what happens in the U.S. equity and bond markets.

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