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The Journal of Alternative Investments

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Primary Article

The Difficulties of Measuring the Benefits of Hedge Funds

Andreas Signer and Laurent Favre
The Journal of Alternative Investments Summer 2002, 5 (1) 31-41; DOI: https://doi.org/10.3905/jai.2002.319041
Andreas Signer
A Ph.D. student at the University of Zurich, Switzerland.
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  • For correspondence: andreas.signer@dplanet.ch
Laurent Favre
Associate director of the Investment Center of Research at UBS Switzerland.
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  • For correspondence: laurent-za.favre@ubs.com
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Abstract

In this article, the use of the “mean-variance approach” for the determination of the benefits of allocations to hedge funds is critically evaluated. The advantages of investing in hedge funds are often explained and demonstrated with reference to a shift in the efficiency frontier of traditional portfolios. The added value of hedge funds is almost always indicated in a mean-standard deviation environment and should in our view be reconsidered. The estimated risk exposure can be quantified by the introduction of value-at-risk analysis corrected according to higher moments of distribution. With this new risk measure, we are able to obtain a corrected value.

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The Journal of Alternative Investments
Vol. 5, Issue 1
Summer 2002
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The Difficulties of Measuring the Benefits of Hedge Funds
Andreas Signer, Laurent Favre
The Journal of Alternative Investments Jun 2002, 5 (1) 31-41; DOI: 10.3905/jai.2002.319041

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The Difficulties of Measuring the Benefits of Hedge Funds
Andreas Signer, Laurent Favre
The Journal of Alternative Investments Jun 2002, 5 (1) 31-41; DOI: 10.3905/jai.2002.319041
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