Hedge Fund Return Statistics 1994–2005

Abstract

In this article we examine various statistical properties of several hedge fund style returns. We use hedge fund indices from CSBF/Tremont as well as global bonds and equity investment indices covering the period 1994–2005. We find that some of the hedge fund styles seem to have a higher mean return and a lower standard deviation than the equity market. We also find the index return distributions to be not normal and exhibit negative skewness and positive excess kurtosis for several styles. We also utilize stochastic dominance as a tool for ranking the best risk-adjusted investment style. Many hedge fund index returns have a high positive correlation with the stock market while most styles are nearly uncorrelated with the bond market. A high correlation with the equity market put the diversification effect of hedge funds into question