Journal of Finance Vol. 54 No. 3 1999

The Performance of Hedge Funds: Risk, Return, and Incentives

Carl Ackermann¹; Richard Mcenally²; David Ravenscraft^3,4

¹ College of Business Administration University of Notre Dame · ² Kenan-Flagler Business School, University of North Carolina, Chapel Hill · ³ University of North Carolina at Chapel Hill · ⁴ College of Business Administration

Abstract

Hedge funds display several interesting characteristics that may influence performance, including: flexible investment strategies, strong managerial incentives, substantial managerial investment, sophisticated investors, and limited government oversight. Using a large sample of hedge fund data from 1988–1995, we find that hedge funds consistently outperform mutual funds, but not standard market indices. Hedge funds, however, are more volatile than both mutual funds and market indices. Incentive fees explain some of the higher performance, but not the increased total risk. The impact of six data‐conditioning biases is explored. We find evidence that positive and negative survival‐related biases offset each other.

DOI

10.1111/0022-1082.00129

Volume

54

Issue

3

Pages

833-874

Language

en

Sources

openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓