Determinants of the Nordic hedge fund performance


Hedge funds have become an important part of the financial sector. The development of the hedge funds in the Nordic countries has been rather robust. Therefore, it is important to identify the determinants of the hedge fund performance and isolate the managerial performance, i.e., the Jensen’s alpha. To this end, this paper construct cross sectional and panel model for the Nordic hedge funds over 2005–2018. The Fung-Hsieh 8-factor model and other models are developed to identify the determinants of the Nordic hedge fund performance. The effects of crises of different nature (local to global, hedge funds to banking sector) are also tested. The results indicate that Nordic hedge funds are capable to generate positive alpha during the crisis even exceeding the alpha of the economically stable time periods.

Keyword : hedge funds, Nordic countries, asset pricing, panel models, crisis variable, risk factors

How to Cite
Kolisovas, D., Giriūnienė, G., Baležentis, T., Štreimikienė, D., & Morkūnas, M. (2022). Determinants of the Nordic hedge fund performance. Journal of Business Economics and Management, 23(2), 426–450.
Published in Issue
Mar 29, 2022
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Adrian, T., Fleming, M., Shachar, O., & Vogt, E. (2017). Market liquidity after the financial crisis. Annual Review of Financial Economics, 9, 43–83.

Agarwal, V., & Naik, N. Y. (2004). Risks and portfolio decisions involving hedge funds. Review of Financial Studies, 17(1), 63–98.

Agarwal, V., Green, T. C., & Rena, H. (2018). Alpha or beta in the eye of the beholder: What drives hedge fund flows? Journal of Financial Economics, 127(3), 417–434.

Alliance Bernstein. (2012). Rooting Out Biases in Hedge-Fund Data.

Almeida, C., Ardison, K., & Garcia, R. (2020). Nonparametric assessment of hedge fund performance. Journal of Econometrics, 214(2), 349–378.

Ardia, D., & Boudt, K. (2018). The peer performance ratios of hedge funds. Journal of Banking and Finance, 87(C), 351–368.

Babecký, J., Havráneka, T., Matˇej˚u, J., Rusnáka, M., Smídková, K., & Vašíček, B. (2014). Banking, debt, and currency crises in developed countries: Stylizedfacts and early warning indicators. Journal of Financial Stability, 15, 1–17.

Berglund, A., Guidolin, M. & Pedio, M. (2018). Monetary policy after the crisis: Threat or opportunity to hedge funds’ alphas? (BAFFI CAREFIN Centre Research Paper No. 2018-84).

Bernard, C., Vanduffel, S., & Ye, J. (2019). A new efficiency test for ranking investments: Application to hedge fund performance. Economics Letters, 181, 203–207.

Bohl, M. T., Siklos, P. L., Stefan, M., & Wellenreuther, C. (2020). Price discovery in agricultural commodity markets: Do speculators contribute? Journal of Commodity Markets, 18, 100092.

Canepa, A., González, M., & Skinner, F. S. (2020). Hedge fund strategies: A non-parametric analysis. International Review of Financial Analysis, 67, 101436.

Cao, Ch., Liang, B., Lo, A. W., & Petrasek, L. (2018). Hedge fund holdings and stock market efficiency. The Review of Asset Pricing Studies, 8(1), 77–116.

Capocci, D., Corhay, A., & Hubner, G. (2005). Hedge fund performance and persistence in bull and bear markets. The European Journal of Finance, 11(5), 361–392.

Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52(1), 57–82.

Chen, Y., Sun, J., Xu, W., & Jin, H. (2019). Empirical test of CAPM in Shanghai securities market. Finance, 9(1), 28–33.

Denk, K., Djerroud, B., Seco, L., Shakourifar, M., & Zagso, R. (2020). Option-like properties in the distribution of hedge fund returns. Frontiers of Engineering Management, 7(2), 275–286.

Dewaele B., Pirotte, H., Tuchschmid, N., & Wallerstein, E. (2015). Assessing the performance of Funds of Hedge Funds (Working Papers CEB 11-041). Universite Libre de Bruxelles.

Dixon, L., Clancy, N., & Kumar, K. B. (2012). Hedge funds and systemic risk. RAND Corporation, Santa Monica, CA.

Do, V., Faff, R., & Wickramanayake, J. (2005). An empirical analysis of hedge fund performance: The case of Australian hedge funds industry. Journal of Multinational Financial Management, 15(4–5), 377–393.

Dou, W., Kogan, L., & Wu, W. (2021). Common fund flows: Flow hedging and factor pricing (Jacobs Levy Equity Management Center for Quantitative Financial Research Paper).

Duanmu, J., Li, Y., & Malakhov, A. (2020). Capturing hedge fund risk factor exposures: Hedge fund return replication with ETFs. The Financial Review, 55(3), 405–431.

Edelman, D., Fung, W., Hsieh, D. A., & Naik, N. Y. (2012). Funds of hedge funds: Performance, risk and capital formation 2005 to 2010. Financial Markets and Portfolio Management, 26(1), 87–108.

Estrada, J. (2021). No hedge funds, no cry.

Evestment. (2018) Hedge fund exposure and tail risk industry report.

Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3–56.

Fung, W., & Hsieh, D. A. (1997). Empirical characteristics of dynamic trading strategies: The case of hedge funds. Review of Financial Studies, 10(2), 275–302.

Fung, W., & Hsieh, D. A. (2001). The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers. Review of Financial Studies, 14(2), 313–341.

Fung, W., & Hsieh, D. A. (2004). Hedge fund benchmarks: A risk-based approach. Financial Analysts Journal, 60(5), 65–80.

Gregoriou, G. N., Racicot, F. É., & Théoret, R. (2021). The response of hedge fund tail risk to macroeconomic shocks: A nonlinear VAR approach. Economic Modelling, 94, 843–872.

Grinblatt, M., Jostova, G., Petrasek, L., & Philipov, A. (2020). Style and skill: Hedge funds, mutual funds, and momentum. Management Science, 66(12), 5505–5531.

Hansen, L. (1982). Large sample properties of generalized method of moments estimators. Econometrica, 50(3), 1029–1054.

Helliwell, J. F., Layard, R., Sachs, J. D., De Neve, J. E., Aknin, L. B., & Wang, S. (2021). World Happiness Report. United Nations Program.

Hespeler, F., & Loiacono, G. (2015). Monitoring systemic risk in the hedge fund sector (ESMA Working Paper, 2).

Joenväärä, J., Kauppila, M., Kosowski, R., & Tolonen, P. (2019). Hedge fund performance: Are stylized facts sensitive to which database one uses? (Critical Finance Review).

Kang, B. U., Kim, J. M., Palmon, O., & Zhong, Z. (2020). Are college education and job experience complements or substitutes? Evidence from hedge fund portfolio performance. Review of Quantitative Finance and Accounting, 54(4), 1247–1278.

Kanuri, S. (2020). Hedge fund performance in Japan. Review of Pacific Basin Financial Markets and Policies, 23(3), 2050023.

Kolisovas, D. (2021a). Secrets of long livers: Crisis alpha. In Nordic hedge fund industry report 2021 (pp. 48–53).

Kolisovas, D. (2021b). In the Face of COVID-19: Unusual crisis performance, Finding Alpha in Equities, (pp. 38–43).

Liang, B., & Qiu, L. (2019). Hedge fund leverage: 2002–2017. European Financial Management, 25(4), 908–941.

Mensi, W., Shafiullah, M., Vo, X. V., & Kang, S. H. (2021). Volatility spillovers between strategic commodity futures and stock markets and portfolio implications: Evidence from developed and emerging economies. Resources Policy, 71, 102002.

Metzger, N., & Shenai, V. (2019). Hedge fund performance during and after the crisis: A comparative analysis of strategies 2007–2017. International Journal of Financial Studies, 7(1), 15.

Oueslati, A., & Hammami, Y. (2018). Forecasting stock returns in Saudi Arabia and Malaysia. Review of Accounting and Finance, 17(2), 259–279.

Pástor, L., & Stambaugh, R. F. (2003). Liquidity risk and expected stock returns. Journal of Political Economy, 111(3), 642–685.

Racicot, F. E. (2015). Engineering robust instruments for GMM estimation of panel data regression models with errors in variables: a note. Applied Economics, 47(10), 981–989.

Racicot, F. E., & Théoret, R. (2016). Macroeconomic shocks, forward-looking dynamics, and the behavior of hedge funds. Journal of Banking & Finance, 62, 41–61.

Racicot, F. É., & Théoret, R. (2019). Hedge fund return higher moments over the business cycle. Economic Modelling, 78, 73–97.

Racicot, F. E., Rentz, W. F., & Théoret, R. (2018). Testing the new Fama and French factors with illiquidity: A panel data investigation. Finance, 39(3), 45–102.

Racicot, F. E., Théoret, R., & Gregoriou, G. N. (2021). The response of hedge fund higher moments risk to macroeconomic and illiquidity shocks. International Review of Economics and Finance, 73, 289–318.

Robertson, J. (2018). Replica localization in East Asia: The case of the Asian hedge fund industry. Globalizations, 15(3), 407–421.

Ross, S. A. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341–360.

Siegel, J. J. (2005). The Future for Investors: Why the tried and the true triumph over the bold and the new. Crown Publishing.

Stafylas, D., Anderson, K., & Uddin, M. (2018). Hedge fund performance attribution under various market conditions. International Review of Financial Analysis, 56, 221–237.

Sung, S., Chun, D., Cho, H., & Ryu, D. (2020). Hedge fund market runs during financial crises. Economic Research-Ekonomska Istraživanja, 34(1), 266–291.

Swartz, L. M., & Emami-Langroodi, F. (2018). Relative Value Hedge Funds: A behavioral modeling of hedge fund risk and return factors. Journal of Behavioral Finance, 19(4), 462–482.

Teo, M. (2009). The geography of hedge funds. Review of Financial Studies, 22(9), 3531–3561.

Van Dyk, F., Van Vuuren, G., & Heymans, A. (2014). Hedge fund performance using scaled Sharpe and Treynor measures. International Business & Economics Research Journal (IBER), 13(6), 1261–1300.

Zhao, Y. L., Liu, F. Y., Liu, C. Y., Usman, M., Dutta, K. D. (2020). Readability of annual report and inefficient investment: Evidence from debt financing. Transformations in Business & Economics, 19(1(49)), 166–190.