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Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases

Published online by Cambridge University Press:  06 April 2009

William Fung  and
David A. Hsieh
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Abstract

It is well known that the pro forma performance of a sample of investment funds contains biases. These biases are documented in Brown, Goetzmann, Ibbotson, and Ross (1992) using mutual funds as subjects. The organization structure of hedge funds, as private and often offshore vehicles, makes data collection a much more onerous task, amplifying the impact of performance measurement biases. Theis paper reviews these biases in hedge funds. We also propose using funds-of-hedge funds to measure aggregate hedge fund performance, based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 291 - 307
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Fung, Partner, PI Asset Management LLC, Garden City, NY 11530; and Hsieh, Fuqua School of Business, Duke University, Box 90120, Durham, NC 27708. The authors acknowledge research support from the Duke Global Capital Markets Center and helpful comments from Howard Wohl, Stephen Brown (the editor), David Ravenscraft, and an anonymous referee.

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