EDHEC-Risk Institute research finds hedge fund alpha not correctly measured

Research by the EDHEC-Risk Institute into non-linear risk adjusted hedge fund returns has found flaws in measurements made via previous studies into the source of alpha.

Its latest study – Robust Assessment of Hedge Fund Performance through Nonparametric Discounting – suggests that “what was incorrectly measured as hedge fund alpha in previous studies is actually some form of fair reward obtained by hedge fund managers from holding a set of relatively complex linear and non-linear exposures with respect to various risk factors.”

These risk factors include equities, bonds, credit, currencies and commodities. By measuring performance according to non-linear risk exposure, the research also concludes that individual fund managers can measure the sensitivity of their portfolios to shocks affecting the risk factors, such as macro shocks.

This type of measurement facilitates evaluation of hedge fund managers’ performances in light of bull or bear markets, liquid or illiquid markets, and high or low interest rates, the research adds.

To view a copy of the report click here: [asset_library_tag 5585,Robust Assessment of Hedge Fund Performance through Nonparametric Discounting]

 

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