The effect of size, age, beta and disclosure requirements on hedge fund performance

Authors: Frumkin, Dvir; Vandegrift, Donald

Source: Journal of Derivatives & Hedge Funds, Volume 15, Number 3, November 2009 , pp. 241-251(11)

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Abstract:

In this study, hedge fund returns in excess of the S&P 500 were analyzed to determine the effects of beta, fund size, age and enforced registration in 2006 as a result of Rule 203(b)(3)-2. It was discovered that beta had a positive effect on performance, while the increasing age of a fund caused managers to suffer from `style drift', thereby reducing the hedge fund's performance. It was also found that registration increased returns by 11.6 per cent by raising the net worth requirement for accredited investors, thereby providing funds with a more knowledgeable investor and increased asset base stability. This suggests that advisers have been able to use funds more efficiently by taking on more leveraged positions and holding less cash on hand, while pursuing a greater number of strategies.

Document Type: Research article

DOI: http://dx.doi.org/10.1057/jdhf.2009.12

Publication date: 2009-11-01