hedge funds

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sachin_patel

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This is what I read.
Hedge funds have higher abosolute and risk-adjusted return than stocks and bonds.
Sharpe ratio is higher than equity but lower than bonds.
How can it earn higher risk-adjusted return than bonds if it has lower sharpe ratio than bonds?
 
I didn’t read anything like this. I rather see a mention in the curriculum that statistics over a given period of time were showing that hedge funds had higher risk-adjusted returns, and it referred to the sharpe ratio being higher.
I don’t know where you have this information from but risk-adjusted return is a more judgemental measure I believe, because you have different ways of computing it (depending on what you take as a measure of risk)
Maybe that explains the info you found
 
Sachin - are you referring to exhibit 22 and 23 in CFAI text reading 25 on hedge funds.
Please note that they are referring to 2 different time series.
Otherwise, I haven’t seen anything like this.
Also note that Sharpe ratio is not recommended measure of risk-adjusted performance for hedge funds due to skewness and kurtosis as highlighted in the text.
 
My mistake. This is what I read in schweser.
Hedge funds generated higher absolute and risk-adjusted returns than stocks and bonds over the period 1990-2004.
For the more recent period, the mean return and Sharpe ratio is higher than the measures for stocks, but they are both lower than the measures for bonds.
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Is my conclusion correct for sharp ratio relationship below? I do understand its not right measure but still for the comparison.
stock < hedge funds < bonds
 
Yes for more recent data (2000 -2004)- Sharpe ratio = stock < hedge funds < bonds.
Please check exhibit 23 in CFAI reading 25.
 
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