Evaluation Model and Performance Analysis for the Korean-Style Hedge Funds

Yi, June Suh

Korean Journal of Financial Studies 2016;45(1):1-34.
Published online February 28, 2016.

June Suh Yi

한국형 헤지펀드 평가모형 도출 및 성과분석

이준서

Abstract

This paper develops an evaluation model for the Korean-style hedge funds and analyzes their performance. This study also examines the performance on individual fund level and asset management company, and investigates the relationship between fund flows and their performance. Out of twelve existing well-known risk factor models and asset-based models for hedge funds, Avramov et al. (2011) model shows the highest R2, the most suitable model to estimate the hedge fund performance in Korea. By employing twenty three variables used in existing models, I also produce the Korean seven- and eight-factor models that provide better explanations than the Arvamov et al. model. The Korean-style hedge funds are observed to have presented a positive abnormal return on average and to have improved the performance. This paper also finds that about twenty percent of funds present statistically significant abnormal return on individual fund level and that two asset management companies do so as well. Especially, these asset management companies record a prominent performance, suggesting that there are differences in fund management skills among companies. In addition, the fund inflows rise subsequent to the fund performance while the fund inflows are not followed by the performance deterioration. Meanwhile, performance persistence is more likely to exist on a monthly basis.

Key Words: Performance Persistence,Performance Estimation Model,Korean-Style,Hedge Fund,Cash Flows,현금흐름,헤지펀드,한국형,성과평가모형,성과지속성