What Is a Hedge Fund

The provided text is an academic journal article from the **Singapore Management University** that evaluates the **risk, return, and performance pitfalls** associated with the hedge fund industry. It defines **hedge funds** as private investment vehicles that utilise aggressive strategies like **leverage, short-selling, and derivatives** to achieve absolute returns. The authors highlight significant **statistical biases** in commercial databases, such as **survivorship and selection bias**, which can lead to an overestimation of actual fund performance. Because hedge fund returns often follow **non-normal distributions**, the research suggests that traditional metrics like **mean-variance analysis** are insufficient for assessing true risk. Consequently, the paper proposes alternative measures like the **Sortino and Hurst Ratios** to better capture downside volatility and return persistence. Finally, the authors introduce a **penalty function** to adjust performance reporting for practical risks such as **liquidity, asset concentration, and style inconsistency**.

Added 18 Jul 2026