Performance, Risk and Incentives of U.S. and Offshore Hedge Funds

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bachelor_Marstio_Kasper_2023.pdf (1.32 MB)

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School of Business | Bachelor's thesis
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Date

2023

Department

Rahoituksen laitos

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Mcode

Degree programme

Rahoitus

Language

en

Pages

27

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Abstract

In this paper I examine the relationship between U.S. and Offshore hedge funds’ performance, risk, and managerial incentives in the presence of 5 unique hedge fund features and 7 hedge fund investment strategies. I find evidence suggesting that on average, hedge funds are not able to beat the market in terms of risk-adjusted returns but show higher risk-adjusted returns and volatility over mutual funds. I find some positive relationships between certain hedge fund features and performance but reveal no clear evidence of hedge fund strategies having a significant effect on hedge funds’ risk-adjusted performance. I find evidence suggesting that hedge fund managers are incentivized to enhance their risk taking to achieve superior returns in the presence of performance-based compensation schemes. Finally, I investigate 2 data-conditioning biases and find that these biases can cause hedge funds’ performance to be overstated.

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Thesis advisor

Kokkonen, Joni

Keywords

hedge funds, performance, risk, returns, U.S., offshore, managerial Incentives

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https://urn.fi/URN:NBN:fi:aalto-202401281891

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[kand] Kauppakorkeakoulu / BIZ (Open Access)