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Should hedge funds deviate from the benchmark?

Panopoulou, Ekaterini, Voukelatos, Nikolaos (2021) Should hedge funds deviate from the benchmark? Financial Management, . ISSN 0046-3892. E-ISSN 1755-053X. (Access to this publication is currently restricted. You may be able to access a copy if URLs are provided) (KAR id:91134)

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Language: English

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Official URL
http://doi.org/10.1111/fima.12383

Abstract

We examine the relationship between deviating from the benchmark and subsequent performance for hedge funds. We propose a simple new measure of benchmark deviations, termed the Dispersion Contribution Index (DCI), which is based on a fund's return-distance from the mean return of same-style funds. We find that funds which deviate the most from their benchmark tend to underperform relative to their less distinctive peers, after accounting for their risk profile and various fund characteristics. This relative underperformance stems primarily from the higher subsequent risk exposure associated with pursuing a unique strategy. Our results are indicative of risk shifting by fund managers attempting to maximize the value of their compensation contracts.

Item Type: Article
Uncontrolled keywords: Hedge funds
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Nikolaos Voukelatos
Date Deposited: 28 Oct 2021 07:23 UTC
Last Modified: 19 Nov 2021 14:16 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/91134 (The current URI for this page, for reference purposes)
Voukelatos, Nikolaos: https://orcid.org/0000-0001-8272-2901
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