what drives the high moments of hedge fund returns abstractwe study the high moment distribution of hedge fund returns and identify factors that drive high moment risk using hedge fund monthly returns we find a strong correlation between the first four moments of returns i e mean standard deviation sd skewness and kurtosis and different characteristics of the funds such as leverage liquidity incentives and strategy related factors we find that after controlling for other factors incentives related factors and a hedge fund s specific strategy have the greatest impact on the distribution of fund returns our evidence also suggests investors allocate across hedge fund characteristics while placing greater emphasis on fund strategies and incentive factors

does bankruptcy law affect business turnover evidence from new and existing business this study examines how differences in state bankruptcy laws specifically the homestead exemption affect business turnover by studying both new and existing businesses we focus on areas just near state boundaries to control for unobserved local attributes to better isolate the effect of more wealth protection we find that an increase in the homestead exemption attracts new businesses but also has a positive impact on existing businesses suggesting that asset protection through bankruptcy law encourages successful entrepreneurs to incur the risks our results indicate that the personal bankruptcy law is an important policy tool that governments can use to encourage business growth without causing business turnover jel k30 k36 r11 r1

networking off madison avenue known for the key role that networking plays in the operation of agencies where interviews suggest that informal networking among close neighbors is critical to many agencies success networking involves the exchange of ideas and while there is no market place for these ideas exchanges may be more deliberate rather than just marshall s 1890 mysteries of the air type of information spillovers this paper examines the effect on productivity of having more near advertising agency neighborhoods and hence better opportunities for meetings and exchange within manhattan we will show that there is extremely rapid spatial decay in the benefits of having more near neighbors even in the close quarters of southern manhattan a finding that is new to the empirical literature and indicates our understanding of scale externalities is still very limited the finding indicates that having a high density of commercial establishments is important in enhancing local productivity an issue in lucas and rossi hansberg 2002 where within business district spatial decay of spillovers plays a key role we will argue also that in manhattan advertising agencies trade off the higher rent costs of being in bigger clusters nearer centers of action against the lower rent costs of operating on the fringes away from high concentrations of other agencies introducing the idea of trade offs immediately suggests heterogeneity is involved we will show that higher quality agencies are the ones willing to pay more rent to locate in greater size clusters specifically because they benefit more from networking while all 1 the research in this paper was conducted while the authors were census bureau research associates at the boston research data center research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the census bureau the paper has been screened to ensure that no confidential data are revealed we acknowledge helpful comments from andrew foster on aspects of the paper and from participants in seminars at brown university lse and the university of toronto

hidden survivorship in hedge fund returns this study identifies a previously unreported bias in the tass database owing to a merger with the tremont database 60 percent of the funds added to the tass database between april 1999 and november 2001 are likely to be survivors i e funds that were selected only from funds that were live as of 31 march 1999 the resulting survivorship bias is substantial averaging more than 5 percent a year what would normally be termed the backfill period actually represents hidden survivorship a sorting algorithm to exclude these fund histories is proposed

the effect of investment constraints on hedge fund investor returns this paper examines the effect of real world investor level investment constraints including several that have not been studied before on hedge fund performance and its persistence using a large consolidated database we demonstrate that hedge fund performance persistence is significantly reduced when rebalancing rules reflect fund size restrictions and liquidity constraints but remains statistically significant at higher rebalancing frequencies hypothetical investor portfolios that incorporate additional minimum diversification constraints minimum investment requirements and focus on open funds suggest that the performance and its persistence documented in earlier studies of hedge funds is not easily exploitable especially by large investors

geography industrial organization and agglomeration this paper makes two contributions to the empirical literature on agglomeration economies first the paper uses a unique and rich database in conjunction with mapping software to measure the geographic extent of agglomerative externalities previous papers have been forced to assume that agglomeration economies are club goods that operate at a metropolitan scale second the paper tests for the existence of organizational agglomeration economies of the kind studied qualitatively by saxenian 1994 this is a potentially important source of increasing returns that previous empirical work has not considered results indicate that localization economies attenuate rapidly and that industrial organization affects the benefits of agglomeration

survival look ahead bias and the persistence in hedge fund performance we analyze the performance persistence in hedge funds taking into account look ahead bias multi period sampling bias we model liquidation of hedge funds by analyzing how it depends upon historical performance next we use a weighting procedure that eliminates look ahead bias in measures for performance persistence in contrast to earlier results for mutual funds the impact of look ahead bias is exacerbated for hedge funds due to their greater level of total risk at the four quarter horizon look ahead bias can be as much as 3 8 depending upon the decile of the distribution we find positive persistence in hedge fund quarterly returns after correcting for investment style the empirical pattern at the annual level is also consistent with positive persistence but its statistical significance is weak

the risk in hedge fund strategies theory and evidence from trend followers hedge fund strategies typically generate option like returns linear factor models using benchmark asset indices have difficulty explaining them following the suggestions in glosten and jagannathan 1994 this article shows how to model hedge fund returns by focusing on the popular trend following strategy we use lookback straddles to model trend following strategies and show that they can explain trend following funds returns better than standard asset indices though standard straddles lead to similar empirical results lookback straddles are theoretically closer to the concept of trend following our model should be useful in the design of performance benchmarks for trend following funds

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

personal bankruptcy and credit supply and demand this paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit while generous state level bankruptcy exemptions are probably viewed by most policy makers as benefiting less well off borrowers our results using data from the 1983 survey of consumer finances suggest that they increase the amount of credit held by high asset households and reduce the availability and amount of credit to low asset households conditioning on observable characteristics thus bankruptcy exemptions redistribute credit toward borrowers with high assets interest rates on automobile loans for low asset households also appear to be higher in high exemption states

friction in the trading process and the estimation of systematic risk abstract this paper considers how estimates of the market model beta parameter can be biased by friction in the trading process information decision and transaction costs that a leads to a distinction between observed and true returns b causes observed returns to be generated asynchronously for a set of interdependent securities and c thereby introduces serial cross correlation into security returns several propositions are derived from which consistent estimators of beta are obtained and the effect of differencing interval length on beta estimates is specified the formulation is contrasted with the related analyses of scholes williams 1977 and dimson 1979

predicting hedge fund failure a comparison of risk measures this paper compares downside risk measures that incorporate higher return moments with traditional risk measures such as standard deviation in predicting hedge fund failure when controlling for investment strategies performance fund age size lockup high water mark and leverage we find that funds with larger downside risk have a higher hazard rate how ever standard deviation loses the explanatory power once the other explanatory variables are included in the hazard model further we find that liquidation does not necessarily mean failure in the hedge fund industry by reexamining the attrition rate we show that the real failure rate of 3 1 is lower than the attrition rate of 8 7 on an annual basis during the period of 1995 2004

hedge funds risk and return from a database that is relatively free of bias this article provides measures of the returns of hedge funds and of the distinctly nonnormal characteristics of the data the results include risk adjusted measures of performance and tests of the degree to which hedge funds live up to their claim of market neutrality the substantial attrition of hedge funds is examined the determinants of hedge fund demise are analyzed and results of tests of return persistence are presented the conclusion is that hedge funds are riskier and provide lower returns than is commonly supposed

higher risk lower returns what hedge fund investors really earn abstract the returns of hedge fund investors depend not only on the returns of the funds they hold but also on the timing and magnitude of their capital flows in and out of these funds we use dollar weighted returns a form of internal rate of return irr to assess the properties of actual investor returns on hedge funds and compare them to buy and hold fund returns our main finding is that annualized dollar weighted returns are on the magnitude of 3 to 7 lower than corresponding buy and hold fund returns using factor models of risk and the estimated dollar weighted performance gap we find that the real alpha of hedge fund investors is close to zero in absolute terms dollar weighted returns are reliably lower than the return on the standard poor s s p 500 index and are only marginally higher than the risk free rate as of the end of 2008 the combined impression from these results is that the return experience of hedge fund investors is much worse than previously thought

stagnation income distribution and monopoly power the deceleration in the rate of industrial growth in the indian economy since the middlesixties initially interpreted by some as a temporary downward deviation from trend hasnow come to be generally accepted as reflecting long run tendencies towards stagnation several explanations for these tendencies have been offered bhagwati and desai 1970 and bhagwati and srinivasan 1975 have focused on inefficiencies and the misallocationof resources arising from industrial policies pursued by the government others chakravarty 1974 raj 1976 and vaidyanathan 1974 among them have emphasisedthe sluggishness of agricultural growth which is alleged to have retarded industrial growthby limiting markets and the supply of wage goods and raw materials a third view reflectedin srinivasan and narayana 1977 for example has put the blame on a slackening of invest ment demand due to lower public investment but does not explain why public investmentfell or why its fall restrained industrial growth finally there is the explanation put forthin bagchi 1970 1975 1982 in nayyar 1978 and in parts of mitra 1977 that inequali ties in income distribution have resulted in a limited demand for industrial goods reducedincentives for investment and therefore reduced growth this view seems to suggest apositive relation between growth and income equality which is opposed to the generallyaccepted idea derived from cambridge growth models that higher growth requires greaterinequality the purpose of this paper is to examine the last explanation by considering the inter action between growth and income distribution in an underdeveloped economy with thehelp of a simple macroeconomic model the model is a stylisation of the indian economy so that we will be able to use the model to assess the argument that a deceleration in therate of growth of the indian industrial economy could have been caused by an unequaldistribution of income the argument will not be made that this income distributional con straint is the binding constraint on industrial growth the model will merely examine theinternal consistency of the argument that a bad income distribution could explain stagnation in the sense of reduced growth and show that in the indian context as in other similarcontexts this argument can be put forward in explaining stagnation our argument is first presented with a highly simplified schematisation of the indianeconomy which we shall call the basic model the economy modelled produces only one

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

only winners in tough times repeat hedge fund performance persistence over different market conditions we provide novel evidence that hedge fund performance is persistent following weak hedge fund markets but is not persistent following strong markets specifically we construct two performance measures downsidereturns and upsidereturns conditioned on the level of overall hedge fund sector returns after adjusting for risks funds in the highest downsidereturns quintile outperform funds in the lowest quintile by about 7 in the subsequent year whereas funds with better upsidereturns do not outperform subsequently the downsidereturns can predict future fund performance over a horizon as long as 3 years for both winners and losers and for funds with few share restrictions

analyzing the length of welfare spells abstract this paper studies the determinants of the length of individual spells of welfare focusing on how the length of a spell affects the probability of its termination the analysis utilizes six years of monthly data on time spent in the afdc program among female household heads a variety of duration dependence models are estimated monthly afdc participation does not show strong evidence of duration dependence two distinct groups appear to utilize welfare one with a very low and constant probability of leaving welfare and a second group which is more affected by time on the program

the effect of the bankruptcy reform act of 1978 on small business loan pricing abstract the bankruptcy reform act of 1978 contains several provisions that can affect the cost of producing loans for financial intermediaries in a competitive lending market the additional monitoring and expected foreclosure costs imposed by the change in the bankruptcy law should be passed on to the borrower using survey data from a sample of small business loans from commercial banks evidence is presented that the enactment of the new law resulted in higher contract rates of interest

multi period performance persistence analysis of hedge funds since hedge funds specify significant lock up periods we investigate persistence in the performance of hedge funds using a multi period framework in which the likelihood of observing persistence by chance is lower than in the traditional two period framework under the null hypothesis of no manager skill no persistence the theoretical distribution of observing wins or losses follows a binormial distribution we test this hypothesis using the traditional two period framework and compare the findings with the results obtained using our multi period framework we examine whether persistence is sensitive to the length of return measurement intervals by using quarterly half yearly and yearly returns we find maximum persistence at the quarterly horizon indicating that presistence among hedge fund managers is short term in nature

the myth of the absolute return investor the notion of absolute return investing is spreading like wildfire many people believe that superior returns can be achieved by managers with strong views and little regard for benchmarks this article attempts to define absolute return investing and figure out whether it exists the conclusion is that all investment returns consist of a beta part representing the correlation of the active portfolio with one or more market benchmarks or normal portfolios and an active alpha part thus all investing is relative return investing in which active returns are earned relative to an appropriate benchmark or mix of benchmarks

an estimation of the hazard rate of firms under chapter 11 protection the instantaneous probability hazard rate of a firm s exit from chapter 11 protection is examined using the weibull duration model the effect of various regressors and the effect of the time a firm spends under chapter 11 protection on this instantaneous probability is analyzed i show that the hazard increases significantly under chapter 11 among the variables chosen the interest burden of the firm and the capacity utilization of the firm s industry significantly increase the hazard other firm specific variables like the long term debt to assets ratio and the number of shares outstanding and economy wide variables like the prime interest rate and the gross national product growth rate have no significant effect on the hazard copyright 1994 by mit press

the road less traveled strategy distinctiveness and hedge fund performance we investigate whether skilled hedge fund managers are more likely to pursue unique investment strategies that result in superior performance we propose a measure of the distinctiveness of a fund s investment strategy based on historical fund return data we call the measure the strategy distinctiveness index sdi we document substantial cross sectional variations as well as strong persistence in sdi our main result indicates that on average a higher sdi is associated with better subsequent performance after adjusting for risk funds in the highest sdi quintile outperform funds in the lowest quintile by 3 5 in the subsequent year the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

tax uncertainty and business activity abstract we investigate the extent to which uncertainties about tax policies affect business activities we develop a statewide tax uncertainty measure tu measure and show that it captures state corporate tax uncertainty by comparing adjacent counties across state borders we show that increasing tax uncertainty by one standard deviation a 30 increase in the tu measure leads to a 0 17 point per year decrease in the growth rate of establishments over two years the result holds after conducting a variety of robustness checks and is not likely to be driven by general state policy uncertainties

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

dynamic prediction of hedge fund survival in crisis prone financial markets abstract this study focuses on dynamic changes in survival probabilities over the lifetimes of hedge funds to model such probabilities a mixed cox proportional hazards cph model specifically a survival hazard model with time varying covariates and fixed covariates is employed resulting dynamic survival probabilities show that the mixed cph model provides significantly higher accuracy in predicting hedge fund failure than other models in the literature including fixed covariate cph models and discrete logit models our results are useful to investors and regulators of hedge funds in crisis prone financial markets

nonsynchronous security trading and market index autocorrelation the theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model this estimated level is found to be substantially less than that observed empirically the theoretical and empirical relationship between portfolio size and autocorrelation also is investigated the results of this study suggest that other price adjustment delay factors in addition to nonsynchronous trading cause the high autocorrelations present in daily returns on stock index portfolios

survivorship bias and attrition effects in measures of performance persistence we simulate standard tests of performance persistence using alternative returngenerating processes survival criteria and test methodologies when survival depends on performance over several periods survivorship bias induces spurious reversals despite the presence of cross sectional heteroskedasticity in performance look ahead biased methodologies and missing nal returns typical of u s mutual fund datasets can also materially a ect persistence measures our results reinforce previous ndings that u s mutual fund performance is truly persistent when fund performance is truly persistent fund attrition a ects persistence measures even when the sample includes all nonsurvivor returns we also examine the speci cation and power of the various persistence tests 1999 elsevier science s a all rights reserved

assessing and valuing the non linear structure of hedge fund returns several studies have put forward the non linear structure and option like features of returns associated with hedge fund strategies the authors provide a statistical methodology to test for such non linear features with the returns on any benchmark portfolio they estimate the portfolio of options that best approximates the returns of a given hedge fund account for this search in the statistical testing of the contingent claim features and test whether the identi ed non linear features have a positive value the authors nd that not all categories of funds exhibit signi cant non linearities and that only a few strategies as a group provide signi cant value to investors individual funds may still provide value in

performance characteristics of hedge funds and commodity funds natural vs spurious biases it is well known that the pro forma performance of a sample of investment funds contains biases these biases are documented in brown goetzmann ibbotson and ross 1992 using mutual funds as subjects the organization structure of hedge funds as private and often offshore vehicles makes data collection a much more onerous task amplifying the impact of performance measurement biases theis paper reviews these biases in hedge funds we also propose using funds of hedge funds to measure aggregate hedge fund performance based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds

estimating workers marginal willingness to pay for job attributes using duration data this paper develops and applies a method for estimating workers marginal willingess to pay for job attributes when workers job choices are characterized by imperfect information and labor market search as an application this paper analyzes the job durations of white males using data from the national longitudinal survey youth cohort and the dictionary of occupational titles estimates of workers willingness to pay derived from the job duration model are compared with those derived from an hedonic wage model

can state tax policies be used to promote entrepreneurial activity despite a recent flurry of empirical research on the effects of taxes on small business activity state level taxes faced by entrepreneurs have been overlooked by most of the existing literature using a 50 state panel of tax policy information spanning the years 1989 through 2002 our analysis reveals that state tax policies generally do not appear to have quantitatively important effects on entrepreneurial activity when we find statistically important effects we find that higher individual income tax rates the existence of a state level estate inheritance or gift tax and a higher weight on the sales factor in the state corporate income tax apportionment formula all slightly reduce a state s share of the national entrepreneurial stock results also indicate that states with more progressive personal income tax structures and states that have more aggressive corporate income taxes through the imposition of a combined reporting requirement both tend to have slightly higher entrepreneurship rates the composition of state tax portfolios is not found to be a significant determinant of state entrepreneurship

mark up pricing sectoral dynamics and the traverse process in a two sector kaleckian economy kaleckian models which study the relation between functional income distribution and demand formation have focused on how macro level distribution affects macro level performance in the real economy however labour management negotiations are held at the industry level and thus the relation between sectoral distribution and sectoral macroeconomic performance should be considered this study presents a two sector kaleckian model with intermediate inputs and investigates how a distributive change in one sector affects sectoral macroeconomic capacity utilization and capital accumulation the results of the presented comparative static analysis and traverse analysis demonstrate that one sector s change in the mark up rate shifts each sector s rate of capacity utilization in the opposite direction while the impact of one sector s change in the mark up rate on performance differs by sector the analyses also demonstrate that the effect of a change in the mark up rate on capital accumulation depends on the firm s animal spirits

unemployment and the real wage the economic basis for contesting political ideologies using the keynesian theory of effective demand this paper demonstrates how particular models such as that of cooperative capitalism enunciated by the left keynesian social democrats the marxian model of profit squeeze emphasizing distributive conflict and even the conservative model relying on supply side stimulus fit in as particular variants of a more general theoretical scheme through a reconstruction of the familiar is schedule the argument is weaved around the theme of the relations between unemployment and real wage in the context of both a closed and an open economy to explain the common macroeconomic basis of contesting ideologies copyright 1990 by oxford university press

the abcs of hedge funds alphas betas and costs the authors decomposed their estimated pre fee 1995 2009 hedge fund return of 11 13 percent into fees 3 43 percent an alpha 3 00 percent and a beta 4 70 percent the year by year results show that alphas were positive during every year of the past decade even during the recent financial crisis

rejoinder the j shape of performance persistence given survivorship bias hendricks patel and zeckhauser 1997 hpz find that the response of current to past returns for mutual funds in the presence of survivorship is nonlinear in our rejoinder to their paper we verify their results through simulation provide some intuition for why the result is true and evaluate the power of their proposed test based upon the j shape pattern theirs is a useful contribution to the growing literature about the issue of survival biases in empirical finance it may help to explain puzzling results reported in the mutual fund literature and may provide a guide for future experimental design our investigation of the hpz results led us to a more complete understanding of how differential volatility affects survival conditioned returns our simulations of the test statistic proposed by hpz suggest that the power of the test is dependent on the absolute level of the threshold as well as on the magnitude of the cross sectional differences in variance while it would be useful to have a relia

wage bargaining imperfect competition and the markup optimizing microfoundations abstract combining the conjectural variations and nash bargaining approaches it is shown that the demand insensitive markup depends on the bargaining power of unions relative to owners of firms in addition to more standard product market characteristics

tax avoidance and business location in a state border model abstract previous studies have struggled to demonstrate that higher taxes deter business activity we revisit this issue by estimating the effect of changes over time in cross border differences in state tax conditions on the tendency for new establishments to favor one side of a state border over the other identification is enhanced by taking account of previously overlooked reciprocal agreements that require workers to pay income tax to their state of residence as opposed to their state of employment when reciprocal agreements are in force higher personal income tax rates lure companies from across the border while corporate income tax and sales tax rates have the opposite effect where reciprocal agreements are not in place the results are largely reversed these patterns are amplified in heavily developed locations and differ in anticipated ways by industry and corporate non corporate status of the establishment overall results strengthen the view that state level tax policies do affect the location decisions of entrepreneurs and new business activity but not in a way that lends itself to a one size fits all summary