Predicting hedge fund performance when fund returns are skewed

Andrea J. Heuson, Mark C. Hutchinson, Alok Kumar

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We show that fund-specific return skewness is associated with managerial skill and future hedge fund performance. Specifically, skewness in fund returns reflects managerial skill in avoiding large drawdowns. Using a new measure of investment skill that accounts for this managerial ability, we demonstrate that traditional performance measures underestimate (overestimate) managerial performance when returns exhibit positive (negative) fund-specific skewness. Our new measure is particularly valuable during periods of economic crisis, when the annual risk-adjusted outperformance is 5.5%.

Original languageEnglish (US)
Pages (from-to)877-896
Number of pages20
JournalFinancial Management
Volume49
Issue number4
DOIs
StatePublished - Dec 1 2020

Keywords

  • G10
  • G19
  • G20
  • fund-specific skewness
  • hedge funds
  • investment skill
  • performance measurement
  • performance persistence

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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