Volatility and the Cross-Sectional Performance of
Emerging Market Hedge Funds

Abstract

Using an augmented Treynor and Mazuy model, the authors analyze the cross-sectional performance of a large sample of hedge funds operating in different regions of emerging markets. The performances of these funds are benchmarked on the relevant regional capital market indices and optionbased risk factors. They find that the realized volatility of emerging market stock indices generally has a negative impact on fund performance. For some of these funds, they find evidence of an ability to generate alpha and time the market. Furthermore, they provide information on how certain fund characteristics are related to the performance and ability of the fund managers.