Hedge Fund Performance: Are Stylized Facts Sensitive to Which Database One Uses?

This paper proposes a novel database merging approach and reexamines the fundamental questions regarding hedge fund performance. Before drawing conclusions about fund performance, we form an aggregate database by exploiting all available information across and within seven commercial databases so that the widest possible data coverage is obtained and the effect of data biases is mitigated. Average performance is significantly lower but more persistent when these conclusions are inferred from the aggregate database than from some of the individual commercial databases. Although hedge funds deliver performance persistence, the average fund does not deliver significant risk-adjusted net-of-fee returns while the gross-of-fee returns remain significantly positive. Consistent with previous literature, we find a significant association between fund characteristics related to share restrictions as well as compensation structure and risk-adjusted returns.

Automated summary

This paper introduces a novel approach of merging databases to reexamine the performance of hedge funds. The study shows that average fund performance is significantly lower but more persistent, with no significant net-of-fee returns although there is performance persistence and significantly positive gross-of-fee returns.