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Article

Hedge Fund Performance in Bull and Bear Markets: Alpha Creation and Risk Exposure

Sjur Hordvik Sandvik, Stein Frydenberg, Sjur Westgaard and Rolv Kristian Heitmann
The Journal of Investing Spring 2011, 20 (1) 52-77; DOI: https://doi.org/10.3905/joi.2011.20.1.052
Sjur Hordvik Sandvik
is a research assistant at the Norwegian University of Science and Technology (NTNU) in Trondheim, Norway.
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  • For correspondence: sjurhord@stud.ntnu.no
Stein Frydenberg
is an associate professor at Trondheim Business School (HIST) in Trondheim, Norway.
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  • For correspondence: stein.frydenberg@hist.no
Sjur Westgaard
is an associate professor at Trondheim Business School and the Norwegian University of Science and Technology in Trondheim, Norway.
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  • For correspondence: sjur.westgaard@hist.no
Rolv Kristian Heitmann
is a credit research analyst at DnB NOR Markets in Oslo, Norway.
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  • For correspondence: rolv.kristian.heitmann@dnbnor.no
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Abstract

This article investigates whether hedge funds create abnormal risk-adjusted returns, during both bull and bear markets. The model applied is an extended multi-factor model, using a dataset consisting of hedge fund return series with data from a 15-year period ranging from 1994 to 2009. The whole set, as well as bull and bear subperiods, has been analyzed. The authors apply a slightly different model from that used in previous studies and use a comprehensive database that includes the recent financial crisis. A limited amount of the hedge fund literature distinguishes between performance during bull markets and bear markets. The authors find that most hedge fund strategies reduce their exposure to the equity markets during adverse market conditions and invest more in commodities. The inclusion of global macro and managed futures funds in an investor’s portfolio offers a good hedge for bear market conditions.

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The Journal of Investing: 20 (1)
The Journal of Investing
Vol. 20, Issue 1
Spring 2011
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Hedge Fund Performance in Bull and Bear Markets: Alpha Creation and Risk Exposure
Sjur Hordvik Sandvik, Stein Frydenberg, Sjur Westgaard, Rolv Kristian Heitmann
The Journal of Investing Feb 2011, 20 (1) 52-77; DOI: 10.3905/joi.2011.20.1.052

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Hedge Fund Performance in Bull and Bear Markets: Alpha Creation and Risk Exposure
Sjur Hordvik Sandvik, Stein Frydenberg, Sjur Westgaard, Rolv Kristian Heitmann
The Journal of Investing Feb 2011, 20 (1) 52-77; DOI: 10.3905/joi.2011.20.1.052
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  • Article
    • Abstract
    • LITERATURE REVIEW
    • PERFORMANCE MEASUREMENT MODEL
    • DATA
    • DESCRIPTIVE STATISTICS
    • CORRELATIONS
    • RESULTS
    • CONCLUSION
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • APPENDIX D
    • APPENDIX E
    • APPENDIX F
    • ENDNOTES
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