Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/45277
Authors: 
Wagenvoort, Rien
Year of Publication: 
2006
Series/Report no.: 
Economic and financial reports / European Investment Bank 2006/02
Abstract: 
We measure the total-risk-adjusted (as opposed to factor-risk-adjusted) performance of hedge fund indices in well-diversified portfolios. Alpha is defined as the difference between, on the one hand, the average return on a mean-variance efficient portfolio containing exclusively traditional market assets (such as stocks and bonds) and, on the other hand, the average return on a mean-variance efficient portfolio containing traditional market assets and the new asset (such as a hedge fund index), where both portfolios carry the same risk. Alpha is conditioned on this risk level. Outlier-robust mean-variance efficient portfolios are constructed by using Minimum Volume Ellipsoid (MVE) estimates of location and scatter. We find that, between July 1995 and December 2005, the broad Credit Suisse/Tremont hedge index did not deliver statistically significant alpha.
JEL: 
G11
G12
G23
Document Type: 
Working Paper

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