What are the consequences for hedge fund indices?
Franois-Serge Lhabitant: Many hedge fund indices are equally weighted rather than asset weighted, which corresponds to a strategy that would sell the winners to buy the losers the opposite of what investors tend to do. In addition, hedge fund indices are subject to numerous construction biases (self-selection, survivorship, backfilling of the track record, etc.). Would you say that the hedge fund indices available on the market are good indices? More specifically, can investors rely on hedge fund indices and use them in their performance measurement process? Franois-Serge Lhabitant: As relative performance takes a greater and greater role in alternative markets, choosing a good index will become a more and more important decision. Unfortunately, so far, many hedge fund indices are based on small samples of funds, which are not representative of the industry and provide very heterogeneous performance. This is likely to bias their conclusions in any performance measurement process. The c
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