The Effectiveness of Hedge Fund Investment Strategies under Various Market Conditions

• Autorzy: Michał Falkowski , Agata Sierpińska-Sawicz , Piotr Szczepankowski
• Języki publikacji: EN

Abstrakty

EN

The main purpose of the article was to analyze the effectiveness of the basic investment strategies used by hedge funds in the long term (years 1994-2015) and during the global financial crisis (years 2007-2009). Using information from commercial databases we attempted to verify the hypothesis that alternative hedge funds, regardless of the type of strategy they use, are capable of achieving better outcomes than other capital allocation options, at any time and under a variety of market conditions. We analyzed hedge funds effectiveness in two stages. For stage one, we performed a profitability analysis for the whole hedge funds sector in the two periods and compared the results with the stock rates of return achieved by investors in the global market for the same period and with the risk-free rate. At stage two we calculated ratios that included rate of return and risk, though only for specific strategies. We used traditional portfolio performance measures (Sharpe, Treynor, Jensen ratios) as well as the newer ones (the Sortino ratio, downside deviation). The results show no confirmation that investments carried out by hedge funds are more risky than traditional capital investment methods. Risk associated with investments by the analyzed entities was lower not only in times of prosperity, but also during crisis, providing a clear indication of the higher effectiveness of entities operating in the alternative investment sector and regardless of the changes taking place in the financial market, the length of the capital investment period or the investment strategy being pursued. (original abstract)

Słowa kluczowe

EN

Hedge fund; Effectiveness; Investment strategy; Financial crisis

PL

Fundusze hedgingowe; Efektywność; Strategia inwestycyjna; Kryzys finansowy

• Czasopismo: Contemporary Economics
• Rocznik: 2020
• Tom: 14
• Numer: nr 2
• Strony: 127--143

Twórcy

autor

Michał Falkowski

• Deutsche Bank, United Kingdom

autor

Agata Sierpińska-Sawicz

• Poznań University of Economics, Poland

autor

Piotr Szczepankowski

• University of Economics and Human Sciences in Warsaw, Poland

Bibliografia

• Agarwal, V., & Naik, N. Y. (Sep., 2000). Multi-period performance persistence analysis of hedge funds. Journal of Financial and Quantitative Analysis, 35(3), 327-342.
• Beber, A., & Pagano, M. (Feb., 2013). Short-selling bans around the world: Evidence from the 2007-2009 crisis. The Journal of Finance, 68(1), 343-381.
• Boyson, M., Stahel, C., & Stulz, R. (2010). Hedge fund contagion and liquidity shocks. The Journal of Finance, 65(5), 1789-1816.
• Brown, S. J., Goetzmann, W. N., & Ibbotson, R. G. (Jan., 1999). Offshore hedge funds: Survival and performance. Journal of Business, 72(1), 91-117.
• Brown, G. W., Green, J., & Hand, J. R. (2012). Are hedge funds systemically important?. Journal of Derivatives, 20(2), 8-25.
• Brunnermeier, K., & Nagel, S. (2004). Hedge funds and the technology bubble. The Journal of Finance, 59(5), 2013-2040.
• Cassar, G., & Gerakos, J. (Aug., 2013). Does risk management work? Harvard Business School. Retrieved from https://www.hbs.edu/faculty/conferences/2014-imo/Documents/Cassar IMO 2014.pdf (access: 10.05.2017).
• Edelman, D., Fung, W., & Hsieh, D. A. (Sept., 2013). Exploring uncharted territories of the hedge fund industry: Empirical characteristics of mega hedge fund firms. Journal of Financial Economics, 109(3), 734-758.
• Fung, W. K., & Hsieh, D. A. (2006). Hedge funds: An industry in its adolescence. Economic Review-Federal Reserve Bank Of Atlanta, 91(4), 1.
• Getmansky, M., Lo, A. W., & Makarov, I. (2004). An econometric analysis of serial correlation and illiquidity in hedge fund returns. Journal of Financial Economics, 74(3), 529-609.
• Giraud, J. R., Hedges, J. R., & Wright, T. (2001). Hedge funds: Economic benefits and practical challenges. The Journal of Alternative Investments, Winter, 4(3), 27-37.
• Hedges IV, J. R. (2005). Hedges on hedge funds. How to successfully analyze and select an investment. John Wiley & Sons.
• Jaeger, R. A. (2003). All about hedge funds. The easy way to get started, The McGraw Hill Company.
• Jagannathan, R., Malakhov, A., & Novikov, D. (2010). Do hot hands exist among hedge fund managers? An empirical evaluation. The Journal of Finance, 65(1), 217-255.
• Jensen, M., C., (1968). Problems in selection of security portfolios. The performance of mutual funds in the period 1945-1964. The Journal of Finance, 23(2), 389-416.
• Joenväärä, J., Kosowski, R., & Tolonen, P. (2012). New 'stylized facts' about hedge funds and database selection bias. EDHEC Working Paper, Retrieved from http://www.efmaefm.org/0efmameetings/efma annual meetings/2013-Reading/papers/EFMA2013_0410_fullpaper.pdf, (access: 20.05.2017).
• Kosowski, R., Naik, N. Y., & Teo, M. (2007). Do hedge funds deliver alpha? A Bayesian and bootstrap analysis. Journal of Financial Economics, 84(1), 229-264.
• Lhabitant, F. S. (2006), Handbook of hedge funds, John Wiley & Sons.
• Liang, B. (2000). Hedge funds: The living and the dead. The Journal of Financial and Quantitative Analysis, 35(3), 309-326.
• Marsh, I., & Payne, R. (2010). Banning short sales and market quality: The U.K.'s experience. Cass Business School and Warwick Business School, London, Retrieved from http://ssrn.com/abstract=1645847, (access: 25.07.2017).
• Nicholas, J. G. (2000). Market-neutral investing: Long/short hedge fund strategies. Bloomberg Press.
• Perez, K., (2011). Wyniki inwestycyjne funduszy hedge. Czynniki wpływające na ich interpretację [Investment results of hedge funds. The factors affecting their interpretation]. Bank i Kredyt, 42(6), 85-124.
• Schneeweis, T., & Martin, G. (2001). The benefits of hedge funds: Asset allocation for the institutional investors. The Journal of Alternative Investments, Winter, 4(3), 7-26.
• Sharpe, W. F. (Jan., 1966). Mutual fund performance. The Journal of Business, 39(1), Part 2, 119-138.
• Sortino, F., van der Meer, R., (1991). Downside risk. The Journal of Portfolio Management, Summer, 17(4), 27-31.
• Stefanini, F., (2006). Investment strategies of hedge funds. John Wiley & Sons, Ltd., West Sussex, England.
• Treynor, J. L, (1965). How to rate management of investment funds. Harvard Business Review, 43(1), 63-75.

Identyfikatory

DOI

10.5709/ce.1897-9254.336