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Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds

Published online by Cambridge University Press:  01 April 2009

Vikas Agarwal ,
Nicole M. Boyson  and
Narayan Y. Naik
Vikas Agarwal
Affiliation:
Robinson College of Business, Georgia State University, 35 Broad St., Atlanta, GA 30303. vagarwal@gsu.edu
Nicole M. Boyson
Affiliation:
College of Business Administration, Northeastern University, 360 Huntington Ave., Boston, MA 02115. n.boyson@neu.edu
Narayan Y. Naik
Affiliation:
Institute of Finance and Accounting, London Business School, Sussex Place, Regent’s Park, London NW1 4SA, United Kingdom. nnaik@london.edu
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Abstract

Recently, there has been rapid growth in the assets managed by “hedged mutual funds”—mutual funds mimicking hedge fund strategies. We examine the performance of these funds relative to hedge funds and traditional mutual funds. Despite using similar trading strategies, hedged mutual funds underperform hedge funds. We attribute this finding to hedge funds’ lighter regulation and better incentives. Conversely, hedged mutual funds outperform traditional mutual funds. Notably, this superior performance is driven by managers with experience implementing hedge fund strategies. Our findings have implications for investors seeking hedge-fund-like payoffs at a lower cost and within the comfort of a regulated environment.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 2 , April 2009 , pp. 273 - 305
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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