The Risk in Hedge Fund Strategies: Alternative Alphas and Alternative Betas

Finance

Centre for Hedge Fund Research and Education Working Paper

2004

Hedge fund managers typically transact in similar asset markets to those used by conventional fund managers. Yet, there is much documented evidence that hedge funds have different return characteristics than those of conventional asset class managers. Some authors have attributed this apparent dilemma to the skill-based nature of hedge fund performance. However, this proposition is inconsistent with the convergence to poor performance of the hedge fund industry and conventional asset classes during stressful market conditions. Clearly, a model of hedge fund strategies that captures return behavior under different market environments is needed. In the absence of such a model, the opaqueness and the limited operating history of hedge fund organizations inhibits institutional investors' confidence in the consistency of hedge fund performance.

Hedge Fund Centre

HF-013

Centre for Hedge Fund Research and Education Working Paper

No