Performance analysis of hedge funds using investment ratios

Abstract

In this study, various investment ratios popularly used for evaluating hedge fund investment alternatives are evaluated. Contrary to previous studies, little correlation is found between investment ratios that use different risk and return criteria. The rank persistence as well as predictive power of these ratios is then compared. Finally an AHP based framework is proposed which yields a combination of investment ratios that are truer to the investors risk preferences than any single investment ratio. This framework is then illustrated via an example.