On taking the 'alternative' route: risks, rewards, style and performance persistence of hedge funds



Publishing details

IFA Working Paper

Authors / Editors

Agarwal V; Naik N Y


Publication Year



Using a new database of hedge funds, this paper provides a comprehensive analysis of the risk-return characteristics, risk exposures, style analysis and performance persistence of various hedge fund strategies. We conduct a mean-variance analysis to find that a combination of alternative investments and passive indexing in the different asset classes. Using a broad asset class factor model, we find that the hedge fund strategies outperform the benchmark by a range of 6% to 15% per year. Using generalised style analysis, we infer the significant risk exposures of different hedge fund strategies and find results consistent with their investment objectives. Finally, using parametric and non-parametric methods, we examine persistence in the performance of hedge fund managers. We find a reasonable degree of persistence which seems to be attributable more to the losers continuing to be losers instead of winners continuing to be winners.

Publication Research Centre

Institute of Finance and Accounting

Series Number

FIN 289


IFA Working Paper