| dc.description.abstract | In this thesis we have examined the characteristics and performance of hedge funds. This is
done in light of the expected liberalisation of hedge fund regulations in Norway. Our analysis
is mainly of foreign hedge fund indices, but also of a few individual Norwegian hedge funds
for a shorter period.
Hedge funds are known for superior mean-variance characteristics. At first glance they do
indeed appear attractive. However, when taking into account the often disregarded higher
moments of the return distribution, characteristics of negative skewness and positive excess
kurtosis are revealed. This should be taken into consideration when evaluating hedge fund
performance, since it indicates extreme values of return. It is noteworthy though, that in the
shorter period of our analysis, these characteristics have been reduced considerably.
The objective of hedge funds is positive return regardless of market movements, and they
could therefore serve well for portfolio diversification purposes. Our studies reveal a low to
moderate correlation with traditional assets, and it seems to be lower in bear markets. Our
observations also tell us that hedge funds are sensitive to extreme market conditions.
Autocorrelation can cause undervaluation of the volatility of hedge fund returns. The presence
of first order autocorrelation among some hedge fund strategies is evident. Consequently, we
found overestimation of risk-adjusted performance measures, and it also affected correlation.
Among individual Norwegian hedge funds, autocorrelation seems absent.
Literature on hedge funds often focuses on the limitations of traditional performance
measures. Using both traditional and innovative performance measures we find that hedge
funds, in spite of their characteristics, are ranked higher than traditional asset classes. We also
find that the performance ranking of the traditional and innovative measures do not differ
considerable from each other.
However, there are several aspects of consideration when analyzing hedge funds. One of the
major limitations of the research in this field is caused by the hedge funds’ complex nature
and lack of transparency. The absence of reliable and accurate data makes it difficult to draw
definite conclusions. | en |
