The Risk and Performance Analysis in the Hedge Fund Industry: A Case of CSFB and TREMONT
Date Issued
2008
Date
2008
Author(s)
Cheng, Chi-Yu
Abstract
This research uses the normal distribution test to evaluate the performance of monthly index return for nine hedge funds of Credit Suisse/Tremont investable index. The ranking for various investment strategy of hedge fund is made based on the return rate, the coefficient of variation, the Sharpe ratio, and the Sharpe ratio of VaR. Besides, the risk values of various hedge funds are evaluated in the Delta-Normal approach, the historical simulation approach, and the Monte Carlo simulation approach. he empirical results show that the return rates for parts of hedge funds are not the normal distribution with leptokurtic and skewed phenomenon even though most hedge funds fit the normal distribution in small sample. If ranked in the mean return rate, the performance of the investment strategy for emerging market is best. If considering the risk volatility and ranked in coefficient of variation, the performance of the investment strategy for event driven is best. Besides, when the excess return is negative, the ranking would be incorrect if using the Sharpe ratio and the Sharpe ratio of VaR. It is necessary to modify the evaluation method. Comparing the ranking in the modified Sharpe ratio and the ranking in the mean return rate, there is the minor change only. The result shows that the higher the return is, the higher the volatility is.he risk evaluation of the empirical results shows the risk estimated in the historical simulation approach is higher than the risk estimated in the Monte Carlo simulation approach for the investigated period. Both values are very close. At 95% confidence interval, the trace tests are reliable in Delta-Normal approach, the historical simulation approach, and the Monte Carlo simulation approach.
Subjects
Hedge Fund
Performance
Normal Distribution Test
Sharpe ratio
Risk Value
Type
thesis
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