Browsing by Author "Kauppila, Mikko"

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  • Hedge Fund Performance: End of an Era?
    (2021) Bollen, Nicolas P. B.; Joenvaara, Juha; Kauppila, Mikko
     A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
    This article documents a decline in aggregate hedge fund performance over the past decade. We tested whether a set of prediction models can select subsets of individual funds that buck the trend and subsequently outperform. Two of the predictors reliably picked funds that lowered the volatility and raised the Sharpe ratio of a multi-asset-class portfolio relative to a stock/bond portfolio over the full 1997-2016 sample. Hedge fund allocations reduced volatility in two subperiods but failed to improve the Sharpe ratio from 2008 onward. We explore potential explanations for the erosion of hedge fund performance.
  • Hedge fund portfolio selection with fund characteristics
    (2021-11) Joenväärä, Juha; Kauppila, Mikko; Kahra, Hannu
     A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
    This paper examines hedge fund portfolio selection approaches in isolation and in the context of an investor's overall portfolio. Characteristics-based portfolios that minimize risk delivers superior out-of-sample performance. For instance, a minimum variance portfolio tilting toward small funds with high alpha and strategy distinctiveness index and low systematic risk delivers an annualized Sharpe ratio of 2.03 with a maximum drawdown of 5.20%. Investors realize diversification benefits by shifting a portion of their wealth from 60 to 40 equity-bond portfolio to characteristics-based hedge fund portfolio. Investors recognize the attractiveness of characteristics-based portfolios, but do not target flows enough to erode their superior performance.