PT - JOURNAL ARTICLE AU - Thomas Schneeweis AU - Hossein B Kazemi AU - George A Martin TI - Understanding Hedge Fund Performance AID - 10.3905/jai.2003.319069 DP - 2003 Mar 31 TA - The Journal of Alternative Investments PG - 8--30 VI - 5 IP - 4 4099 - https://pm-research.com/content/5/4/8.short 4100 - https://pm-research.com/content/5/4/8.full AB - In this article, the authors briefly review the potential market factors affecting various hedge fund strategies. The market factors affecting hedge fund returns are based on the underlying securities held and the trading philosophy behind each strategy. A simplified multi-factor model is used to capture the market factors driving various hedge fund strategies, and the actual performances of various hedge fund strategies relative to these market based factors are presented. The market factors are also used to illustrate the relative performance of various hedge fund strategies conditional on extreme values of these market factors. The empirical relationship between the measured market factors and various hedge fund strategies over time is also explored. Results show that while for style pure indices of hedge fund performance the factor relationships remain fairly constant, for diversified funds of funds, which may dramatically change their strategy, the factor loadings that explain fund of fund returns change. These results imply that for funds of funds, which emphasize market timing, their benefit in terms of systematic asset allocation is also time varying.