The Neutrality of Market Neutral Funds

Abstract

Using an original database of 634 market neutral hedge funds, this study formally analyse the market neutrality of market neutral funds which are particular in the hedge fund universe. One of the basic objective of these funds is to provide positive returns completely independently of the market conditions. We start by analysing this neutrality using various market neutral indices before focusing on individual fund return figures using the decile classification suggested by Carhart (1997). Finally, an analysis based on ex-post beta helps us understanding our previous results. We perform this analysis over the global January 1993-December 2002 period as well as on bull and bear markets periods.

Keywords: Hedge fund, hedge funds, performance, persistence, decile, return, neutrality, beta, market, index

JEL Classification: G20, G11, G15