Český finanční a účetní časopis 2009(1):51-65 | DOI: 10.18267/j.cfuc.19

Hedge Funds and Their Performance Between 1994 and 2008

Tomáš Jeřábek
Ing. Tomáš Jeřábek - doktorand, Katedra bankovnictví a pojišťovnictví, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3; <tjerabek@doil.com>.

The article presents the key milestones in the hedge funds development and addresses the current state of the hedge fund industry. It defines the term hedge fund is defined and discusses the key hedge fund investment strategies. In the section on problems associated with the measurement of hedge fund returns the key biases in the hedge fund indices are discussed. Based on average annual returns, CAPM's alpha, Sharpe and Sortino ratios, the hedge funds returns between 1994 and 2008 are analyzed and compared to returns on selected market indices - S&P500, MSCI World a Russell 2000. The key conclusion from the return analysis is that although some hedge fund strategies managed to beat the selected market indices, hedge funds on the aggregate level were not able to provide higher returns than the market benchmarks if the biases specific for hedge fund indices are taken into consideration. However, the key potential of hedge funds is in their ability to flexibly respond to extreme market conditions. This fact is evidenced in both lower volatility of hedge fund returns and the above average return relative to market indices in times of capital market crises.

Keywords: Hedge funds; Return; Analysis.
JEL classification: G30

Published: March 1, 2009  Show citation

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Jeřábek, T. (2009). Hedge Funds and Their Performance Between 1994 and 2008. Czech Financial and Accounting Journal, 2009(1), 51-65. doi: 10.18267/j.cfuc.19
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