Citation

Discussion Paper Details

Please find the details for DP12599 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Effect of Investment Constraints on Hedge Fund Investor Returns

Author(s): Juha Joenväärä, Robert Kosowski and Pekka Tolonen

Publication Date: January 2018

Keyword(s): frictions, Hedge Fund Performance, Managerial Skill and Persistence

Programme Area(s): Financial Economics

Abstract: This paper examines the effect of investor-level real-world investment constraints, including several which had not been studied before, on hedge fund performance and its persistence. Using a large consolidated database, we demonstrate that hedge fund performance persistence is significantly reduced when rebalancing rules reflect fund size restrictions and liquidity constraints, but remains statistically significant at higher rebalancing frequencies. Hypothetical investor portfolios that incorporate additional minimum diversification constraints, minimum investment requirements, and focus on open funds suggest that the performance and its persistence documented in earlier studies of hedge funds is not easily exploitable, especially by large investors.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12599

Bibliographic Reference

Joenväärä, J, Kosowski, R and Tolonen, P. 2018. 'The Effect of Investment Constraints on Hedge Fund Investor Returns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12599