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A Note on the Dynamics of Hedge-Fund-Alpha Determinants

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Market Risk and Financial Markets Modeling

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Abstract

Various studies have analyzed the determinants of hedge fund performance. The majority of them, however, come to contradictory conclusions with respect to the direction of influence of different factors on fund performance. The key reason for the inconsistencies is the highly dynamic nature of hedge funds. This paper specifically focuses on the dynamics of the relations between hedge fund performance and various microeconomic factors. It quantifies shifts in the average fund alpha that result from changes in hedge fund style, age, size, and fee structure and investigates the time variation of these shifts. The empirical results highlight the dynamic nature of the hedge fund industry. Hedge funds seem to generate a positive and significant alpha on average; however, the alpha level varies considerably over time. It is hard to predict the exact absolute alpha level based on the hedge fund micro-factors, but it seems to be possible to rank hedge funds using the micro-information. The results suggest that large funds with high relative inflow, charging higher than median management fees, are likely to deliver a higher alpha than their peers most of the time.

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Authors and Affiliations

  1. Manchester Business School, Manchester, UK

    Olga Kolokolova

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  1. Olga Kolokolova
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Correspondence to Olga Kolokolova .

Editor information

Editors and Affiliations

  1. Dept. Management,, Technologie und Ökonomie, ETH Zürich, Kreuzplatz 5, Zürich, 8032, Switzerland

    Didier Sornette

  2. , Prognoz Risk Lab, Perm State University, Perm, Russia

    Sergey Ivliev

  3. , D-MTEC, ETH Zurich, Kreuzplatz 5, Zurich, 8032, Switzerland

    Hilary Woodard

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Kolokolova, O. (2012). A Note on the Dynamics of Hedge-Fund-Alpha Determinants. In: Sornette, D., Ivliev, S., Woodard, H. (eds) Market Risk and Financial Markets Modeling. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-27931-7_10

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  • DOI: https://doi.org/10.1007/978-3-642-27931-7_10

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  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-27930-0

  • Online ISBN: 978-3-642-27931-7

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