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Diseconomies Of Scale In The Hedge Fund Industry, Melvyn Teo
Diseconomies Of Scale In The Hedge Fund Industry, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
How does fund size impact fund performance in the hedge fund industry? We find unsurprisingly that fund size crimps both raw and risk-adjusted fund returns for the average hedge fund. An increase in fund assets under management from US$20m to US$1bn decreases fund alpha by 2.04 percent per year. However, significant variation exists across funds when funds are grouped by investment strategy and region. Equity long/short, event driven, and macro funds are susceptible to capacity constraints while fixed income and managed futures funds are largely immune to such concerns. Our finding that capacity issues impact macro fund performance raises fresh …
How Skilled Are Hedge Funds? Evidence From Their Daily Trades, Russell Jame
How Skilled Are Hedge Funds? Evidence From Their Daily Trades, Russell Jame
Research Collection BNP Paribas Hedge Fund Centre
We examine the trading skill of hedge funds using transaction-level data. After accounting for trading commissions, we find no evidence that the trades of the average hedge fund outperform across holding periods ranging from one month to one year. However, bootstrap simulations indicate that the trading skill of the top 10% of hedge funds cannot be explained by luck. Similarly, we find that the performance of top hedge funds persists and much of this persistence stems from intra-quarter trading skill. Skilled hedge funds tend to be short-term contrarians and their profits are largely concentrated in smaller, more illiquid stocks. Our …
Asian Hedge Funds In A Risk-On, Risk-Off World, Melvyn Teo
Asian Hedge Funds In A Risk-On, Risk-Off World, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
We analyze the performance of Asia-focused and Asia-based funds in risk-on and risk-off periods between 2002 and 2011. We find that Asian hedge funds, like their US and European counterparts, deliver equity-like payoffs with bond-like risk. They generate returns that are roughly in line with the equity markets in risk-on and neutral states of the world. While their returns do not dominate those of US Treasuries in risk-off situations, they generally outperform the equity market by a significant margin. Indeed, their risk-adjusted returns in riskoff states are on par if not higher than their risk-adjusted returns in risk-on states. Of …
Asian Hedge Fund Report, Melvyn Teo
Asian Hedge Fund Report, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
We survey the Asian hedge fund landscape and shed light on the size, investment region, strategy, and performance metrics of funds operating in Asia. Our findings indicate that hedge funds in the region typically maintain close physical proximity to their investment markets. Institutional quality hedge funds with assets under management greater than US$100m tend to focus on Greater China and Japan. Relative to Hong Kong, Japan, and Australia, Singapore harbors the most diverse group of hedge funds in terms of investment strategy. Between January 2000 and December 2011, Greater China focused funds have on average outperformed hedge funds investing in …
Hedge Fund Return Correlation Under Extreme Market Condition, Melvyn Teo
Hedge Fund Return Correlation Under Extreme Market Condition, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
How dependent are returns across hedge fund investment strategies? We estimate the probability that each investment strategy performs poorly when other investment strategies are delivering extreme negative returns. Under extreme market conditions, we find that event driven, distressed debt, and equity long/short funds exhibit the highest correlation with other styles while commodity trading advisors, macro, and equity market neutral funds exhibit the lowest correlation. In addition, we show that Asia-focused event driven and equity market neutral funds provide diversification for investors holding US- and Europe-focused funds.