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On The Performance and Resilience of Hedge Funds

par Hassouni, Afrae
Président du jury Gassner, Marjorie
Promoteur Pirotte, Hugues
Co-Promoteur Gheeraert, Laurent
Publication Non publié, 2021-12-21

Thèse de doctorat

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Résumé :

When you think about hedge funds, you probably think of many terms such as short-selling, speculation, arbitrage, etc. All these terms have raised passionate debate since the early years of the hedge fund industry. These debates have mainly focused on the added value of hedge funds as a new alternative asset class, the analysis of their performance, and the role played by hedge funds in the global financial system. The conclusions drawn from these discussions are so mixed that it is difficult today, if not even impossible, to provide a clear definition of what constitute a hedge fund and what role they play in the global financial system. This dissertation attempts to contribute to those discussions by investigating the factors behind hedge fund performance and resilience. The dissertation is intended to be innovative thanks to the novel statistical methods and the sophisticated data that we used to conduct our analyses.The first research project contributes to the existing debate on the assessment of hedge fund performance as compared to the performance of traditional assets. By applying an innovative statistical approach – the Data Envelopment Analysis – we show that the answer to the question of whether hedge funds outperform or not traditional assets depends on the setting used to gauge this performance. More precisely, we have shown that under the mean-variance setting hedge funds appear to significantly outperform equities. However, this outperformance fades away when we take into account higher moments (i.e. the skewness and kurtosis) of the return distributions. The second research project examines hedge fund performance through the prism of managerial education. Our empirical analysis is based on hand-collected data on the academic background of hedge fund managers, which has allowed us to classify them into quants (managers with a quantitative academic background) and non-quants. By focusing on three hedge fund categories, we show that part of the cross-sectional differences in hedge fund performance can be attributed to the academic background of the managers. We show evidence that the quants outperform (underperform) the non-quants in the case of long-short equity and equity market neutral funds (funds of hedge funds). The third research project contributes to the topic of hedge fund resilience, by investigating the determinants that are identified as representing a threat to the financial strength of the hedge funds, hence representing also a risk to the financial resilience of the hedge fund industry, and potentially to the financial resilience of the global financial system. To this aim, we applied the discrete-time survival model, which has allowed us to examine the temporal dynamic of the factors behind hedge fund failures. The findings from our analyses show evidence that leverage, performance, risk, and size significantly impact hedge fund failure, but only in the first six years of their existence. These findings suggest that there might be a phenomenon of confidence that takes six years to be established between hedge fund investors and managers before the aforementioned factors cease to have an impact on their failure. We believe that our dissertation contributes to a better comprehension of the drivers behind hedge fund performance and resilience. We also hope that our dissertation will support investors, managers, and policy makers in their process of hedge fund screening and monitoring.