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Discussion Paper Details

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Title: Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds

Author(s): Juha Joenväärä and Robert Kosowski

Publication Date: May 2015

Keyword(s): hedge fund performance, managerial skill, mutual fund performance and regulation

Programme Area(s): Financial Economics

Abstract: We economically motivate and then test a range of hypotheses regarding performance and risk differences between UCITS-compliant and other hedge funds. The latter exhibit more suspicious return patterns than do absolute return UCITS (ARUs), but ARUs exhibit higher levels of operational risk. We find evidence of a strong liquidity premium: hedge funds offer investors less liquidity than do ARUs yet exhibit better risk-adjusted performance. Our findings are substantially unchanged under various robustness tests and adjustments for possible selection bias. The liquidity premium for ARUs and their lack of performance persistence have implications for both investors and policy makers.

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Bibliographic Reference

Joenväärä, J and Kosowski, R. 2015. 'Effect of Regulatory Constraints on Fund Performance: New Evidence from UCITS Hedge Funds'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10577