A valuation of Swedish hedge fund performance

Abstract

In this thesis we present annual returns of Swedish hedge funds sorted by investment strategies and investigate which strategy performs best and how the Fama-French factors: market premium, value premium and growth premium affect these returns. The Fama-French three-factor model is built on the Capital Asset Pricing Model which tries to describe the relationship between the expected return of an asset and the risk of the asset compared to the market. By adding the value- and growth factors to further explain the expected returns and risks, we examine which of the hedge fund strategies is performing best in terms of returns and risk over the period 2000-2019. A similar and earlier study on American hedge funds by Ding & Shawky (2007) found that all the strategies studied performed better than the market index, which is similar to the findings in this study. This study finds that the Fama-French factors do explain the performance of Swedish hedge funds and that four out of five strategies statistically affect the performance of hedge funds. The study also finds that the highest ranked hedge fund strategy within the study is Equity. It is interesting to see how Swedish hedge funds strategies perform against the market and against each other, the result could help investors make more informed investments.