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Evaluating hedge fund performance: a stochastic dominance approach

Li, Sheng and Linton, Oliver (2010) Evaluating hedge fund performance: a stochastic dominance approach. In: Guerard, John B. , (ed.) Handbook of Portfolio Construction: Contemporary Applications of Markowitz Techniques. Springer, New York, USA, pp. 551-564. ISBN 9780387774381

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Abstract

We introduce a general and flexible framework for hedge fund performance evaluation and asset allocation: stochastic dominance (SD) theory. Our approach utilizes statistical tests for stochastic dominance to compare the returns of hedge funds. We form hedge fund portfolios by using SD criteria and examine the out-of-sample performance of these hedge fund portfolios. Compared to performance of portfolios of randomly selected hedge funds and mean–variance efficient hedge funds, our results show that fund selection method based on SD criteria greatly improves the performance of hedge fund portfolio.

Item Type: Book Section
Official URL: http://www.springer.com
Additional Information: © 2010 Springer
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Sets: Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 03 May 2011 11:18
URL: http://eprints.lse.ac.uk/35798/

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