On the surface, hedge funds seem to have much higher fees than actively managed mutual funds. However, the true cost of active management should be measured relative to the size of the active positions taken by a fund manager. A mutual fund combines active positions with a passive position in...

The hedge funds industry has evolved tremendously in recent years. According to the CASAM CISDM Industry Report, assets under management in hedge funds had grown from less than USD 50 billion at the end of 1990 to over USD 2.1 trillion at the end of 2007. However, assets managed by hedge funds...

Banking operations are being rewired around a pair of KVA/FVA metrics which quantify market incompleteness, i.e. the impossibility of perfect replication. The FVA is the cost of funding of debt liabilities while the KVA is the risk adjustment for equity liabilities, also called cost of capital....

In spite of tall claims that Hedge Funds have been demystified, the fact remains a big segment of the investment community is not aware of the risk return permutations that this asset class has to offer. Hedge fund is not a new terminology for those tracking Indian Capital market at least for...

In Boyson, Stahel, and Stulz (2010), we investigate whether hedge funds experience worst return contagion – that is, correlations in extremely poor returns that are over and above those expected from economic fundamentals. We find strong evidence of contagion among hedge funds using eight...

This study examines whether the standard compensation contract in the hedge fund industry aligns managers' incentives with investors' interests. I show empirically that managers' compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus,...

We examine the performance life cycle of hedge funds. Performance declines with age are pervasive, not just for the average fund, but also for past winners and for funds with characteristics that predict cross-sectional returns. Fund growth and decreasing performance incentives appear to...

This paper analyzes the life cycles of hedge funds. Using the Lipper TASS database it provides category and fund specific factors that affect the survival probability of hedge funds. The findings show that in general, investors chasing individual fund performance, thus increasing fund flows,...

In this paper, we rationalize the persistent abnormal performance of hedge funds. We show how the commitment to deliver an absolute return, the decreasing returns to scale to which hedge fund strategies are subject, and the performance-linked compensation combine with the incomeaximizing...

This paper investigates the dynamics of hedge fund returns and their behavior of persistence in a unified framework through the Markov Switching ARFIMA model of Härdle and Tsay (2009). Major results based on the CSFB/Tremont hedge fund indexes monthly data during the period 1994-2011, highlight...