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Title: Some Facts about Hedge Funds
Author: Harry M. Kat
Published: June 2002
Pages: 93-123
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Hedge funds promise investors the best of both worlds: superior performance and high diversification potential combined into one. This article discusses a number of recent findings that show that the case for hedge funds is less straightforward than often portrayed. A close look at the available hedge fund return data reveal substantial bias which makes interpretation complex. When using traditional performance measures, this will cause investors to overestimate the expected return and underestimate the risk of hedge funds. As a result, they are likely to overinvest in hedge funds.

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