Date of Award

Spring 2008

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

Kenneth Yung

Committee Member

Mohammad Najand

Committee Member

David Selover

Committee Member

Jot Yau


The studies of hedge fund performance are hindered by the lack of quality returns data and the complicated nature of hedge fund returns. This study contributes to the literature in three ways. First, I reinvestigate the performance of hedge funds from different aspects. Second, I develop a new framework to evaluate fund of hedge funds managers' skills. Finally, I exam the performance persistence of funds of hedge funds by using various performance measures.

In the first study, I find that the annual survivorship and backfilled biases for funds of hedge funds are 0.66% and 0.21%, respectively, during the period 1994-2004. I confirm that hedge funds' monthly returns tend to have low standard deviations, negative skewness and high kurtosis. Hedge funds often underperform the equity market in terms of absolute returns, but outperform the equity market in terms of traditional performance measures like the Jensen alpha, Treynor, and Sharpe ratios. However, when accounting for downside risks, the Omega and Sortino ratios both indicate that the performance of hedge funds is not as superior as the traditional performance measures suggest. I also find that hedge funds usually have low exposures to risk factors identified by Fama and French (1993), and Fung and Hsieh (2004). The subperiod analysis indicates that hedge funds tend to underperform the equity market during a bullish stock market, but outperform the equity market during a bearish stock market. I also find some evidence of stale price when returns are measured monthly, quarterly or semiannually. However, it appears that the stale price does not affect the performance rankings.

In the second study, I am able to replicate funds of funds returns by using hedge fund strategy indices. I find that fund of hedge funds managers have neither the ability of picking winning hedge funds on the net basis nor the ability of predicting winning hedge fund strategies.

In the third study, I find strong evidence of performance persistence when returns are measured monthly, quarterly or semiannually. The evidence of persistence is substantially weakened when returns are measured annually. The quintile analysis indicates that the winners based on the past alpha tend to have the highest return while the losers based on the past Sortino ratio have the lowest return.