Analysis of Hedge Funds Indices’ Jensen’s  Alphas

Smith, Reece

Analysis of Hedge Funds Indices’ Jensen’s Alphas

Persistent URL

https://hdl.handle.net/10456/57439

Author(s)

Smith, Reece

Date Issued

November 17, 2023

Abstract

One of the main questions in the investment management industry is whether it is possible for investment funds to earn excess returns (returns greater than expected for the level of risk assumed). Most analyses done to determine the existence of excess returns are done using mutual fund data, due to its accessibility. Hedge funds are often ignored, to the detriment of the literature, since there are important differences between them that may result in different findings for each fund type. In this analysis I will use three asset-pricing factor models to generate Jensen’s Alphas, a measure of excess returns, using data from Bloomberg’s hedge fund indices as proxies for hedge funds. I identified six indices with significant positive Jensen’s alphas, providing evidence for the ability of some hedge funds to generate excess returns. These results challenge the efficient markets hypothesis and has implications for investment fund regulation.

Major

Economics

Honors

Business and Economics, 2024

First Reader(s)

Navarro-Sanchez, Francisco