English, Article, Journal or magazine article edition: The Necessity to Correct Hedge Fund Returns: Empirical Evidence and Correction Method. Georges Gallais-Hamonno; Huyen Nguyen-Thi-Thanh

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Bookmark: http://trove.nla.gov.au/version/111212
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The Necessity to Correct Hedge Fund Returns: Empirical Evidence and Correction Method.
Author
  • Georges Gallais-Hamonno
  • Huyen Nguyen-Thi-Thanh
Physical Description
  • preprint
Notes
  • We study two principal mechanisms suggested in the literature to correct the serial correlation in hedge fund returns and the impact of this correction on financial characteristics of their returns as well as on their risk level and on their performances. The methods of Geltner (1993), its extension by Okunev &​ White (2003) and that of Getmansky, Lo &​ Makarov (2004) are applied on a sample of 54 hedge fund indexes. The results show that the unsmoothing leaves the mean unchanged but increases significantly the risk level of hedge funds, whether the risk is measured in terms of the return standard-deviation or the modified VaR. Funds' absolute performances, measured by traditional Sharpe ratio and Omega index, decline considerably. By contrast, funds' rankings after the unsmoothing unexpectedly change slightly. However, some notable modifications in ranks of several funds are observed. The necessary transparency of the management practice requires that such a correction must be systematically done.
  • hedge funds, smoothed returns, performance evaluation, Sharpe ratio, Omega index.
  • RePEc:sol:wpaper:07-034
Language
  • English
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