【Background Information】 

Robert Kosowski is Associate Professor in the Finance Group of Imperial College Business School, Imperial College London, and Director of the Risk Management Lab and Centre for Hedge Fund Research. Robert is an associate member of the Oxford-Man Institute of Quantitative Finance at Oxford University and a member of AIMA's research committee. Robert Kosowski's research interests include asset management, asset pricing and financial econometrics with a focus on hedge and mutual funds, performance measurement, asset allocation, business cycles and derivative trading strategies. Robert's research has been featured in The Financial Times and The Wall Street Journal and was awarded the European Finance Association 2007 Best Paper Award, an INQUIRE UK 2008 best paper award, an INQUIRE Europe 2009 best paper award and the British Academy's mid-career fellowship (2011-2012).   

【Abstract】 

This paper contributes to the literature on the effect of liquidity and geography on performance by documenting the effect of geographically disparate hedge fund regulation on fund performance. Based on regulatory constraints, such as share restrictions and risk limits, which differ by country, we economically motivate and test a range of hypotheses regarding differences in performance and risk between UCITS compliant (Absolute Return UCITS (ARUs)) and other hedge funds. The UCITS fund universe is economically important with assets of over $8 trillion. We uncover a strong performance-liquidity tradeoff. Although ARUs underperform other hedge funds on average, this performance difference disappears when we compare subsets of the two groups that have the same liquidity or share restrictions. Hedge funds exhibit lower volatility and tail risk than ARUs on average which is consistent with obstacles to the transportation of hedge fund risk management techniques to ARUs. We find that geography and domicile have a significant effect on fund performance and risk. Finally, we find that there are limits to the ability of investors to exploit the superior liquidity of ARUs through portfolio rebalancing since they exhibit lower performance persistence.