Recovering Delisting Returns of Hedge Funds

• Applicant: Dr. Olga Kolokolova
• Subject Area: Accounting and Finance
• Term: from 2009 to 2010
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 166392865

Hedge funds are very attractive investments vehicles. However, any portfolio analysis involving hedge funds is complicated by scarceness of reported information. For example, numerous hedge funds stop reporting to commercial databases each year. An issue for hedge-fund performance estimation is: what delisting return to attribute to such funds? This would be particularly problematic if delisting returns are typically very different from continuing funds’ returns. This project tries to reconstruct the delisting hedge funds returns using information about funds of hedge funds (FoF: portfolios of hedge funds) which should incorporate the delisting returns. It, first, develops a matching procedure that assigns a portfolio of hedge funds to each FoF. The estimated portfolio holdings for funds-of-funds with reported returns are then used to back out the non-parametric estimates for hedge-fund delisting returns. On the last stage, the determinants of the exit returns are investigated; in particular time trends, the overall hedge fund industry performance, and individual characteristics of delisting funds (such as hedge fund performance, age, style, assets under management) are considered. The identification of the determinants of the exit returns will hopefully enhance our understanding of the hedge fund industry and help investors that consider investing in hedge funds to better estimate the associated risks.

• DFG Programme: Research Fellowships
• International Connection: United Kingdom
• Host: Dr. Robert Kosowski