Measuring Hedge Funds Performance Using Jensen’s Measure, Implied Volatility, Correlations, Covariances, Sharpe and Sortino Ratios

In this paper, we are examining hedge funds risk and return profile over the period 1990 to 2003 using Jensen's measure, implied volatility, correlations, covariances, Sharpe and Sortino ratios. The large range in returns and dispersion suggest that the mean variance approach may not indicate a complete picture of hedge funds performance. Our results suggest that for the examined period, we should investigate the investment objectives of each fund category, the correlations and covariances, the organisation structure, the trading strategy, the Sortino ratio and manager’s compensation scheme including the spreads. Hedge funds returns exhibit a high degree of non-linearity, they are not normally distributed and display high kurtosis. They a leptokurtic or fat tailed. Liquidity and asset concentration is an important issue for long survival of the fund in relation to negative or low correlation with other funds. The categories of hedge funds that are examined are emerging markets, distressed securities, event driven, fixed income arbitrage, global macro, long/short equity and funds of funds. The sample is provided from Data Feeder dataset. It includes hedge funds categories from the period 1990 to 2003. The database includes defunct funds and funds that ceased to operate and, therefore, is free from survivorship bias, selection and backfill bias.