The A’s, B’s, C’s and D’s of hedge funds
|May 4th, 2010 | Filed under: Academic Research, Alternative Beta & Hedge Fund Replication, Today's Post | By: Alpha Male||
Hedge fund detractors often argue that hedge fund returns are driven by systematic risk factors (beta) not manager skill (alpha) as is often assumed. During the hedge fund industry’s 2-decade-run of positive returns, this argument took the sheen off of hedge fund returns and suggested they could replicated using much cheaper passive investments.
But 2008 threw a bit of a wrench into the works. If beta (or it’s exotic cousin alternative beta) was responsible for the positive returns, then were they also responsible for the negative returns? And if so, was hedge fund alpha actually positive during the dark days of 2008?
A new study says yes, hedge funds produced alpha in 2008, just as they had in previous years. In 2010’s “The ABCs of Hedge Funds: Alphas, Betas, & Costs“, Roger Ibbotson, Peng Chen, and Kevin Zhu update their widely-read 2006 paper of the same name.
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