Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JWM
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • LinkedIn
  • Twitter

User menu

  • Sample our Content
  • Subscribe Now
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Wealth Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Subscribe Now
  • Log in
The Journal of Wealth Management

The Journal of Wealth Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JWM
    • Editorial Board
    • Published Ahead of Print (PAP)
  • LinkedIn
  • Twitter
Primary Article

Hedge Fund Investing

A Quantitative Approach to Hedge Fund Manager Selection and De-Selection

Clifford De Souza and Suleyman Gokcan
The Journal of Wealth Management Spring 2004, 6 (4) 52-73; DOI: https://doi.org/10.3905/jwm.2004.391058
Clifford De Souza
Senior investment officer at Citigroup Alternative Investments in New York.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: clifford.desouza@citi.com
Suleyman Gokcan
Vice president at Citigroup Alternative Investments in New York.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: suleyman.gokcan@citigroup.com
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Abstract

This paper introduces a number of quantitative tools for manager selection, due diligence, and the ongoing monitoring of hedge funds that we believe to be particularly suited to the nature of hedge fund returns. The analyses introduced typically address information relevant to the entire distribution function as compared to the more conventional practice of utilizing lower moments such as mean returns and standard deviations. They start by illustrating the degree to which dispersion occurs in hedge fund returns, indicating the need for a high level of both quantitative and qualitative manager selection. They note a strong relationship between volatility and the inter-quartile return statistic that may be a result of the leveraged nature of the strategies involved. They then test the hypothesis that hedge fund performance will persist, suggesting through parametric and non-parametric tests that it is flawed. However, they find by comparison that risk, as defined by volatility, is highly persistent and conclude that this strongly supports a risk budget approach to hedge fund allocation, offering a new, objective algorithm for risk budgeting. For manager selection, they propose the use of the Hurst exponent in conjunction with the D-statistic to identify managers with persistent good performance, also introducing a formal methodology, utilizing a logit model to isolate the characteristics of a database of liquidated funds and find agreement with an earlier model proposed for liquidation. Finally, noting that while a manager's returns, standard deviation, downside deviation, and a number of other statistics should be analyzed, they find the Omega function has particular relevance to hedge funds given its statistical equivalence to the return series and its sensitivity to the investor utility function.

  • © 2004 Pageant Media Ltd

Don’t have access? Register today to begin unrestricted access to our database of research.

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Wealth Management
Vol. 6, Issue 4
Spring 2004
  • Table of Contents
  • Index by author
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Wealth Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Hedge Fund Investing
(Your Name) has sent you a message from The Journal of Wealth Management
(Your Name) thought you would like to see the The Journal of Wealth Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Hedge Fund Investing
Clifford De Souza, Suleyman Gokcan
The Journal of Wealth Management Jan 2004, 6 (4) 52-73; DOI: 10.3905/jwm.2004.391058

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Hedge Fund Investing
Clifford De Souza, Suleyman Gokcan
The Journal of Wealth Management Jan 2004, 6 (4) 52-73; DOI: 10.3905/jwm.2004.391058
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Investing in Times of Inflation Fears: Diversification Properties of Investments in Liquid Real Assets
  • Google Scholar

More in this TOC Section

  • Corporate PACs and the Stock Market
  • The Elusiveness of Investment Skill
  • Asset Liability Management in Financial Planning
Show more Primary Article
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • LinkedIn
  • Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1534-7524 | E-ISSN: 2374-1368

  • Site Map
  • Terms & Conditions
  • Cookies
  • Privacy Policy