This paper studies hedge fund performance and confirms reports of an aggregate decline over the past decade. We test whether a comprehensive set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Seven of the predictors reliably pick...

Factor models yield an R2 insignificantly different from zero for one-third of hedge funds in a broad sample. These funds illustrate the concept of market neutrality and feature lower volatilities, higher Sharpe ratios, and higher alphas than other funds, indicating they provide a successful...