Hedge Fund Performance in Bull and Bear Markets: Alpha Creation and Risk Exposure

Journal of Investing, Spring 2011.

Posted: 24 Jan 2019

See all articles by Stein Frydenberg

Stein Frydenberg

NTNU Business School - Norwegian University of Science and Technology (NTNU)

Sjur Hordvik Sandvik

Independent

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology

Rolv K. Heitman

Independent

Date Written: July 6, 2010

Abstract

The main purpose of this paper is to investigate if hedge funds create abnormal risk-adjusted returns, both during bull and bear markets. The model applied is an extended multi-factor model. The dataset consists of hedge fund return series with data from a fifteen-year period ranging from 1994 to 2009. The whole set, as well as bull and bear sub periods, have been analyzed. We apply a slightly different model from previous studies and we also, more importantly, use a more comprehensive database. Analyzing data until February 2009, we are able to include the recent financial crisis in our study. A limited amount of the hedge fund literature distinguishes between performance during bull markets and bear markets. We find that most hedge fund strategies reduce their exposure to the equity markets during adverse market conditions, and invest more in commodities. The inclusion of Global Macro and Managed Futures funds into an investor's portfolio offers a good hedge for bear market conditions.

Suggested Citation

Frydenberg, Stein and Sandvik, Sjur Hordvik and Westgaard, Sjur and Heitman, Rolv K., Hedge Fund Performance in Bull and Bear Markets: Alpha Creation and Risk Exposure (July 6, 2010). Journal of Investing, Spring 2011. , Available at SSRN: https://ssrn.com/abstract=1635206

Stein Frydenberg (Contact Author)

NTNU Business School - Norwegian University of Science and Technology (NTNU) ( email )

Klaebuveien 72
Trondheim NO-7491, 7491
Norway

HOME PAGE: http://https://www.ntnu.no/ansatte/stein.frydenberg

Sjur Hordvik Sandvik

Independent ( email )

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology ( email )

NO-7491 Trondheim
Norway

Rolv K. Heitman

Independent ( email )

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