Profitability and Risk Characteristics of Hedge Fund Strategies

Abstract

The work deals with the examination of profitability and risk characteristics of the various strategies used by hedge funds. Profitability characteristics focuses on performance in the monitored period and the risk characteristics focus on volatility, downside volatility and the number of periods with a negative performance. The analysis is performed on the basis of monthly data representing the returns of hedge funds for the period 1997–2013. Strategies are divided into 17 categories. The results are compared with the values of the entire hedge fund industry and the SP 500 stock index. In the final section of work, we try to create a simple ranking of strategies, considering their risk-return profile.