@article{32b4e25aceaa49db89e77dd1450ed4d2,
title = "Nonparametric assessment of hedge fund performance",
abstract = "We propose a new class of performance measures for Hedge Fund (HF) returns based on a family of empirically identifiable stochastic discount factors (SDFs). The SDF-based measures incorporate no-arbitrage pricing restrictions and naturally embed information about higher-order mixed moments between HF and benchmark factors returns. We provide a full asymptotic theory for our SDF estimators to test for the statistical significance of each fund's performance and for the relevance of individual benchmark factors within each proposed measure. We apply our methodology to a panel of 4815 individual hedge funds. Our empirical analysis reveals that fewer funds have a statistically significant positive alpha compared to the Jensen's alpha obtained by the traditional linear regression approach. Moreover, the funds{\textquoteright} rankings vary considerably between the two approaches. Performance also varies between the members of our family because of a different fund exposure to higher-order moments of the benchmark factors, highlighting the potential heterogeneity across investors in evaluating performance.",
keywords = "Admissible performance measures, Hedge funds, Higher-order moments, Nonparametric estimation",
author = "Caio Almeida and Kym Ardison and Ren{\'e} Garcia",
note = "Funding Information: We would like to thank the editor Yacine A{\"i}t-Sahalia, an anonymous referee, an associate editor, Walter Distaso (discussant), Ravi Jagannathan, Robert Korajczyk, Hugues Langlois (discussant), Guillaume Roussellet (discussant) and seminar participants at Princeton University, the Hedge Fund Conference of the Oxford-Man Institute of Quantitative Finance (2011), EDHEC-Risk Days Europe in London (2012), EDHEC-Risk Days Asia in Singapore (2012), 5th Annual SOFIE conference in Oxford (2012), SMU-ESSEC Symposium on Empirical Finance and Financial Econometrics in Singapore (2012), Inquire UK Seminar in Bath, Toulouse Financial Econometrics Conference (2012), 13th Brazilian Meeting of Finance (2013), 11th Annual SOFIE conference in Lugano (2018), 10th Annual Hedge Fund and Private Equity Research Conference in Paris (2018), CIREQ Econometrics Conference in Montreal (2018) as well as seminar participants at Princeton, CASS Business School, EDHEC Business School, CREST (Paris), GREQAM (Marseille) and Kellogg School of Management. The first author acknowledges financial support from CNPq, Brazil. The second author acknowledges financial support from ANBIMA, Brazil and FAPERJ, Brazil. He is also thankful to Viktor Todorov, Torben Andersen and the Kellogg School of Management for their hospitality during part of the development of this research project. The third author thanks the NSERC, Canada, the SSHRC, Canada and the FQRSC, Canada research grant agencies for their financial support. He is a TSE associate faculty and a research Fellow of CIRANO and CIREQ. This research project was partially financed by the Coordenacao de Aperfeicoamento de Pessoal de Nivel Superior - Brasil (CAPES) - Finance Code 001. Funding Information: We would like to thank the editor Yacine A{\"i}t-Sahalia, an anonymous referee, an associate editor, Walter Distaso (discussant), Ravi Jagannathan, Robert Korajczyk, Hugues Langlois (discussant), Guillaume Roussellet (discussant) and seminar participants at Princeton University, the Hedge Fund Conference of the Oxford-Man Institute of Quantitative Finance (2011), EDHEC-Risk Days Europe in London (2012), EDHEC-Risk Days Asia in Singapore (2012), 5th Annual SOFIE conference in Oxford (2012), SMU-ESSEC Symposium on Empirical Finance and Financial Econometrics in Singapore (2012), Inquire UK Seminar in Bath, Toulouse Financial Econometrics Conference (2012), 13th Brazilian Meeting of Finance (2013), 11th Annual SOFIE conference in Lugano (2018), 10th Annual Hedge Fund and Private Equity Research Conference in Paris (2018), CIREQ Econometrics Conference in Montreal (2018) as well as seminar participants at Princeton, CASS Business School, EDHEC Business School, CREST (Paris), GREQAM (Marseille) and Kellogg School of Management. The first author acknowledges financial support from CNPq, Brazil . The second author acknowledges financial support from ANBIMA, Brazil and FAPERJ, Brazil . He is also thankful to Viktor Todorov, Torben Andersen and the Kellogg School of Management for their hospitality during part of the development of this research project. The third author thanks the NSERC, Canada , the SSHRC, Canada and the FQRSC, Canada research grant agencies for their financial support. He is a TSE associate faculty and a research Fellow of CIRANO and CIREQ. This research project was partially financed by the Coordenacao de Aperfeicoamento de Pessoal de Nivel Superior - Brasil (CAPES) - Finance Code 001 . Publisher Copyright: {\textcopyright} 2019 Elsevier B.V.",
year = "2020",
month = feb,
doi = "10.1016/j.jeconom.2019.08.002",
language = "English (US)",
volume = "214",
pages = "349--378",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier BV",
number = "2",
}