AnAnalysisofHedgeFundStrategies-Opalesque.pdf

An Analysis of Hedge Fund Strategies Daniel P.J. CAPOCCI HEC-ULG Management School – University of Liège (Belgium) PhD Thesis in Management 1 An Analysis of Hedge Fund Strategies – Table of Contents Acknowledgements 1 An Analysis of Hedge Fund Strategies - Abstract 3 Preface 3 Introduction and Purpose 4 An Analysis of Hedge Fund Performance 43 Hedge Fund Performance and Persistence in Bull and Bear Markets 118 The Sustainability of Hedge Fund Performance: New Insights 188 The Neutrality of Market Neutral Funds 271 Diversifying using Hedge Funds: A Utility-Based Approach 336 General Conclusion 401 A 2 An Analysis of Hedge Fund Strategies - Abstract This PhD thesis analyses hedge fund strategies in detail by decomposing hedge fund performance figures. Our aim is to present hedge funds, to understand what managers expect to do and to understand how they make or destroy value over time. In order to achieve this objective, we develop a multi-factor performance analysis model, use it over several time periods and improve it over time. This model aims to determine both whether hedge funds create pure alpha over time (alpha over classical markets) and whether there is persistence in hedge fund returns over time. Following this, I analyse another specific aspect of hedge funds, their neutrality relative to equity markets in order to validate hedge fund managers’ claims that they are market neutral. Finally, we develop new efficient frontier measures, which not only include returns and volatility, but also skewness and kurtosis in order to determine whether hedge funds are really beneficial to investors.