The Dynamics of Hedge Fund Performance

Serge Darolles (1) , Christian Gouriéroux , Jérôme Teiletche

1 DRM - Dauphine Recherches en Management

The ratings of fund managers based on past performances of the funds and the rating dynamics are crucial information for investors. This paper proposes a stochastic migration model to investigate the dynamics of performance-based ratings of funds, for a given risk-adjusted measure of performance. We distinguish the absolute and relative ratings and explain how to identify their idiosyncratic and systematically persistent (resp. amplifying cycles) components. The methodology is illustrated by the analysis of hedge fund returns extracted from the TASS database for the period 1994–2008.

Mots clés: Stochastic migration model; Measure of performance; Rating dynamics; Fund managers; Hedge Funds; Performance

Domaines: Gestion et management

Serge Darolles, Christian Gouriéroux, Jérôme Teiletche. The Dynamics of Hedge Fund Performance. Econometrics of Risk, pp.85-113, 2015, ⟨10.1007/978-3-319-13449-9_7⟩. ⟨hal-01632878⟩