We introduce a general and ‡exible 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 e¢ cient hedge funds, our results show that fund selection method based on SD criteria greatly improves the performance of hedge fund portfolio.
CITATION STYLE
Li, S., & Linton, O. (2010). Evaluating Hedge Fund Performance: A Stochastic Dominance Approach. In Handbook of Portfolio Construction (pp. 551–564). Springer US. https://doi.org/10.1007/978-0-387-77439-8_20
Mendeley helps you to discover research relevant for your work.