Hedge Fund Investments Performance Analysis of "Long Short Equity Hedge" Investment Strategy

Hedge funds and their celebrated fund managers have caught the fancy of one and all inthe investment management industry and so have their publicized failures. Manybookes have been done using various hedge fund databases to find out what exactlythe managers do to generate their absolute returns. This study reviews the past bookdone in this area and then focuses to build a static multifactor model to determine the riskreturn profile of 327 Long Short Equity Hedge funds. The study shows that the returns ofEquity Hedge strategy are driven primarily by market returns, HML, SMB andmomentum factors, which is in line with the book done earlier. The study also findsthat out of 327 Long Short Equity Hedge funds, around 17% generate a significant alphato the tune of 0.02 per month hence promising abnormal returns for its investors.