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Do the best hedge funds hedge?

  • University of Texas at Austin

Research output: Contribution to journalArticlepeer-review

145 Scopus citations

Abstract

We provide a simple argument that suggests that better-informed hedge funds choose to have less exposure to factor risk. Consistent with this argument, we find that hedge funds that exhibit lower R-squareds with respect to systematic factors have higher Sharpe ratios, higher information ratios, and higher alphas. They also exhibit higher manipulation-proof performance measures and charge higher fees.

Original languageEnglish
Pages (from-to)123-168
Number of pages46
JournalReview of Financial Studies
Volume24
Issue number1
DOIs
StatePublished - Jan 2011

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