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Hedge fund replication gained considerable attention during the period surrounding 2007 when it was anticipated to become for hedge fund investors what index funds are for equity investors. The hedge fund replication concept only lacked a track record. This paper aims to present an updated evaluation.

Performance is evaluated on both a raw‐return basis and a risk‐adjusted basis using Fung and Hsieh's 8‐factor model. Particular emphasis is given to analyzing the performance of these products during the financial crisis and to highlighting the specific characteristics that distinguished them from their hedge fund cousins during this period.

The results show that the hedge fund replication space is definitely proving its existence as a credible hedge fund investment alternative. Talented hedge fund managers will always be in high demand, but they may have to just prove their high compensation a bit harder.

Although this study is based on a short sample period, the results indicate that hedge fund replication products delivered returns that were at par with the returns of hedge funds. The replication products performed comparatively well during the crisis probably as a result of having less exposure to illiquid assets.

To the best of the authors' knowledge, this article uses the most extensive data set of 22 hedge fund replication products to analyze their performance.

The purpose of this paper is to examine whether there is significant evidence that hedge fund managers engage in deceptive manipulation of their reported performance results.

A model of hedge fund performance has been developed using standard regression analysis incorporating dependent lagged variables and an autoregressive process. In addition, the extreme bounds analysis technique has been used to examine the robustness and sensitivity of the explanatory variables. Finally, the conditional influence of the global stock market’s returns on hedge fund performance and the conditional return behavior of the Hedge Fund Index’s performance have been explored.

This paper begins by identifying a model of hedge fund performance using passive index funds that is well specified and robust. Next, the lag structure associated with hedge fund returns has been examined and it has been determined that it seems to take the hedge fund managers two months to integrate the global stock market’s returns into their reported performance; however, the lagged variables were reduced from the final model. The paper continues to explore the smoothing behavior by conditioning the dependent lagged variables on positive and negative returns and find that managers are conservative in their estimates of positive performance events, but, when experiencing a negative result, they seem to attempt to rapidly integrate that effect into the return series. The strength of their integration increases as the magnitude of the negative performance increases. Finally, the performance of returns for both the Hedge Fund Index and the passive indices were examined and no significant differences between the conditional returns were found.

The results of this analysis illustrate that hedge fund performance is not all that different from the performance of passive indices included in this paper, although it does offer investors access to a unique return distribution. From a management perspective, we are reminded that we need to be cautious about hastily arriving at conclusions about something that looks different or feels different from everything else, because, at times, our preconceived notions will cause us to avoid participating in something that may add value to our organizations. From an investment perspective, sometimes having something that looks and behaves differently from everything else, improves our investment experience.

This paper provides a well-specified and robust model of hedge fund performance and uses extreme bounds analysis to test the robustness of this model. This paper also investigates the smoothing behavior of hedge fund performance by segmenting the returns into two cohorts, and it finds that the smoothing behavior is only significant after the hedge funds produce positive performance results, the strength of the relationship between the global stock market and hedge fund performance is more economically significant if the market has generated a negative performance result in the previous period, and that as the previous period’s performance becomes increasingly negative, the strength of the relationship between the Hedge Fund Index and the global stock market increases.

The purpose of this paper is to examine the ability of hedge funds and funds of hedge funds to generate absolute returns using fund level data.

The absolute return profiles are identified using properties of the empirical distributions of fund returns. The authors use both Bayesian multinomial probit and frequentist multinomial logit regressions to examine the relationship between the return profiles and fund characteristics.

Some evidence is found that only some hedge funds strategies, but not all of them, demonstrate higher tendency to produce absolute returns. Also identified are some investment provisions and fund characteristics that can influence the chance of generating absolute returns. Finally, no evidence was found for performance persistence in terms of absolute returns for hedge funds but some limited evidence for funds of funds.

This paper is the first attempt to examine the hedge fund return profiles based on the notion of absolute return in great details. Investors and managers of funds of funds can utilize the identification method in this paper to evaluate the performance of their interested hedge funds from a new angle.

Using the properties of the empirical distribution of the hedge fund returns to classify them into different absolute return profiles is the unique contribution of this paper. The application of the multinomial probit and multinomial logit models in the fund performance and fund characteristics literature is also new since the dependent variable in the authors' regressions is multinomial.

The purpose of this paper is to gain a better understanding of the market timing skills displayed by hedge fund managers during the 2007‐08 financial crisis.

The performance of a market timer can be measured through the 1966 Treynor and Mazuy model, provided the regression alpha is properly adjusted by using the cost of an option‐based replicating portfolio, as shown by Hübner. The paper adapts this approach to the case of multi‐factor models with positive, negative or neutral betas. This new approach is applied on a sample of hedge funds whose managers are likely to exhibit market timing skills. This concentrates on funds that post weekly returns, and analyzes three hedge funds strategies in particular: long‐short equity, managed futures, and funds of hedge funds. The paper analyzes a particular period during which the managers of these funds are likely to magnify their presumed skills, namely around the financial and banking crisis of 2008.

Some funds adopt a positive convexity as a response to the US market index, while others have a concave sensitivity to the returns of an emerging market index. Thus, the paper identifies “positive”, “mixed” and “negative” market timers. A number of signs indicate that only positive market timers manage to acquire options below their cost, and deliver economic significant performance, even in the midst of the financial crisis. Negative market timers, by contrast, behave as if they were forced to sell options without getting the associated premium. This behaviour is interpreted as a possible result of re sales, leading them to liquidate positions under the pressure of redemption orders, and inducing negative performance adjusted for market timing.

The paper suggests that the convexity in returns that is generally associated with market timing can be attributed to three sources: timing skills, exposure to nonlinear risk factors, or liquidity pressures. It manages to identify the impact of the latter two effects in the context of hedge funds.

This article seeks to explain and empirically test the relationship between managerial social capital and hedge fund performance.

This article uses a capital asset pricing model (CAPM)‐style five factor model to estimate excess returns for the top 25 hedge funds.

The results show that hedge funds managers with more affiliation diversity have higher annualised rate of return. This result seems to suggest managers with more social networks and affiliation have access to market niche of wealthy investors to increase their investor base. Hedge fund managers' prior skills sets and repertoire of knowledge significantly influence their risk taking attitude.

The sample consists of the top 25 hedge funds.

The article discusses the role and implications of managerial social capital in hedge fund marketing and performance.

This research aims to examine hedge funds’ performance, risk and flow before and after the implementation of the Stop Trading on Congressional Knowledge (STOCK) Act.

This paper includes the use of different factor models to highlight the performance and risk of hedge funds before and after the implementation of the STOCK Act. Hedge fund holdings are retrieved from Thomson Reuters Lipper Hedge Fund Database (TASS).

This study finds significant differences before and after the implementation of the STOCK Act. The results for the entire sample period indicate that hedge funds suffered lower-alpha, standard deviation and idiosyncratic risk after the implementation of the STOCK Act.

The paper’s originality and value lie in addressing the relationship gap between the STOCK Act and hedge fund performance.

The purpose of this paper is to determine if hedge funds perform poorly as claimed by more recent research. The authors find hedge funds perform well from 2001 to 2013 when compared to sample of firms known to experience superior performance, namely, a sample of seasoned equity offerings (SEOs).

This paper uses a portfolio approach in comparing the performance of hedge funds and SEO firms. Other comparisons involve a number of common methodologies used to compute and analyze short-run and long-run returns.

Contrary to a growing and prevalent belief, the paper offers evidence hedge funds as a whole have performed well for a recent 13-year period. This finding includes periods up to six years around SEO announcement months.

This paper is limited to examining monthly returns for a portfolio of hedge funds. This limitation led to incorporating a portfolio approach.

The findings suggest that a portfolio of hedge funds are an important investment consideration. This consideration has practical implications because investing in a portfolio of hedge funds has become more available for all investors in recent years.

Society can be enhanced as this paper helps future investors make optimal investment decisions.

This paper adds to the hedge fund research by being the first paper to compare the performance of hedge funds with that for firms undergoing an important corporate event. The findings are new and can impact investment decision making.

The purpose of this article is to describe the process for forming and registering a new investment company (or mutual fund) or converting an existing hedge fund into a mutual fund and registering the converted fund. This article discusses the timing, tax and regulatory implications under Delaware law, the US Internal Revenue Code of 1986, the Investment Company Act of 1940 (the “1940 Act”), the Investment Advisers Act of 1940 (the “Advisers Act”), the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).

This article summarizes and analyzes rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to forming and registering new mutual funds and converting existing hedge funds into mutual funds under the 1940 Act and Advisers Act.

For smaller hedge fund managers who have recently registered with the SEC and desire to sponsor a new registered fund product as part of their advisory business, converting and registering an existing hedge fund is a viable alternative to forming an entirely new fund. The conversion process involves converting an existing hedge fund into a Delaware trust and then registering the new trust as a mutual fund under the 1940 Act. The adviser may, under certain circumstances, advertise the past performance of the hedge fund when marketing the new mutual fund. In addition, the adviser may continue to receive performance based or incentive compensation within the boundaries established by the Advisers Act. The authors believe that the conversion process is a viable and cost‐effective method for smaller hedge fund advisers to expand their existing investment advisory products and more easily grow assets under management.

This article provides a useful summary of the process for forming a new mutual fund or converting an existing hedge fund, including a brief outline of the SEC rules and regulations applicable to the fund registration process generally under the 1940 Act. Many hedge fund managers have recently incurred significant compliance costs as a result of registering as an investment adviser with the SEC. This article provides insight into the fund conversion process, which the authors believe is an overlooked and viable option for smaller hedge fund advisers to leverage existing compliance costs through sponsoring a registered fund product.

The main purpose of this chapter is to estimate a model for hedge fund returns that will endogenously generate failure probabilities using panel data where sample attrition due to fund failures is a dominant feature. We use the Lipper (TASS) hedge fund database, which includes all live and defunct hedge funds over the period January 1994 through March 2009, to estimate failure probabilities for hedge funds. Our results show that hedge fund failure prediction can be substantially improved by accounting for selectivity bias caused by censoring in the sample. After controlling for failure risk, we find that capital flow, lockup period, redemption notice period, and fund age are significant factors in explaining hedge fund returns. We also show that for an average hedge fund, failure risk increases substantially with age. Surprisingly, a 5-year-old fund on average has only a 65% survival rate.

This study examines several aspects of active portfolio management by equity hedge funds between 1996 and 2013. Consistent with the idea that cross-sectional return dispersion is a proxy for the market’s available alpha, our results show that equity hedge funds achieve their strongest performance during periods of elevated dispersion. The performance advantage is robust to numerous risk adjustments. Portfolio managers may use the current month’s dispersion to plan the extent to which the following month’s investment approach will be active or passive. We also estimate the active share for equity hedge funds and find an average of 53%. We further document the average annual expense ratio for managing hedge funds’ active share to be about 7%. This figure is remarkably close to active expense ratios reported previously for equity mutual funds, which may be interpreted as evidence of uniform pricing for active portfolio management services.