The search for hedge fund alpha

While hedge funds continue to increase their funds under management, the evidence of their ability to earn alpha or excess returns remains mixed. We consider whether hedge fund returns can be explained by a simple multi-factor model without the inclusion of complex option based investment strategies. We found that over the 1994-2006 period, only 5-7% of the hedge funds we studied earned statistically significant alpha, suggesting that hedge fund alpha is as elusive as ever