It is well known that Hedge Funds, due to the strategies they implement, generate returns that are non-normally distributed. Moreover, Hedge Funds do not disclose their positions as this would eliminate the financial disequilibria they try to exploit. Some might argue that Hedge Funds’ returns are mainly a compensation for risks, i.e. credit and liquidity risks, not priced in a standard market setting. This leads to so-called exotic betas. The specific compensation rules, namely the combination of asset management and performance fees, might also lead to specific after fee return properties (Foster et al. (2008)). The major issue seems to rest with lack of disclosure. Indeed, Lo (2001) has shown that abnormal performance such as that generated by Hedge Funds can be generated by just...
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