Can Hedge Fund Managers Add Value to Their Portfolio by Dynamically Adjusting Them?

• Main Authors: Wen-ChengChang, 張文政
• Other Authors: Meng-Feng Yen
• Format: Others
• Language: en_US
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/49415183981295940282

碩士 === 國立成功大學 === 財務金融研究所 === 101 === The main purpose in our research is to analyze whether hedge fund managers who dynamically manage the level of active risk can generate a superior performance. Our results indicate that funds with low active risk and low volatility in active risk outperform, on average, funds with high active risk and high volatility in active risk. The formers tend to show higher risk adjusted returns, a higher information ratio, a higher Sharpe ratio, a higher manipulation-proof performance measure but lower management and incentive fees. The reason behind the results could be the overconfidence of hedge fund managers or the option-like characteristics of the compensation structure which give hedge fund managers an incentive to take on excess active risk. Finally, we follow Titman and Tiu (2011) and use R-squares as first criteria for picking talented hedge fund managers. We next use active risk and active risk volatility as another two standards to eliminate potential gambling funds. We find that hedge funds that exhibit lower R-squares and simultaneously control active risk and its volatility under a low predetermined level have better risk adjusted performance.