Hedge funds display several interesting characteristics that may influence performance, including: flexible investment strategies, strong managerial incentives, substantial managerial investment, sophisticated investors, and limited government oversight. Using a large sample of hedge fund data from 1988-1995, we find that hedge funds consistently outperform mutual funds, but not standard market indices. Hedge funds, however, are more volatile than both mutual funds and market indices. Incentive fees explain some of the higher performance, but not the increased total risk. The impact of six data-conditioning biases is explored. We find evidence that positive and negative survival-related biases offset each other. HEDGE FUNDS HAVE BEEN IN EXISTENCE for almost 50 years. However, their recent growth has increased their prominence in the financial markets and the business press. Since the late 1980s, the number of hedge funds has risen by more than 25 percent per year. The rate of growth in hedge fund assets has been even more rapid. In 1997, there were more than 1200 hedge funds managing a total of more than $200 billion. Though the number and size of hedge funds are small relative to mutual funds, their growth reflects the importance of this alternative investment vehicle for institutional investors and wealthy individual investors.' As the name implies, hedge funds began as investment partnerships that could take long and short positions. They have evolved into a multifaceted organizational structure that defies simple definition. There are, however, a

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The Performance of Hedge Funds: Risk, Return, and Incentives

It is well known that the pro forma performance of a sample of investment funds contains biases. These biases are documented in Brown, Goetzmann, Ibbotson, and Ross (1992) using mutual funds as subjects. The organization structure of hedge funds, as private and often offshore vehicles, makes data collection a much more onerous task, amplifying the impact of performance measurement biases. Theis paper reviews these biases in hedge funds. We also propose using funds-of-hedge funds to measure aggregate hedge fund performance, based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds.

Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases

In this paper recent developments in the estimation of frontier functions and the measurement of efficiency are surveyed, and the potential applicability of these methods in agricultural economics is discussed. Frontier production, cost and profit functions are discussed, along with the construction of technical, allocative, scale and overall efficiency measures relative to these estimated frontiers. The two primary methods of frontier estimation, econometric and linear programming, are compared. A survey of recent applications of frontier methods in agriculture is also provided. (This abstract was borrowed from another version of this item.)

Recent Developments in Frontier Modelling and Efficiency Measurement

https://link.springer.com/content/pdf/10.1057/jors.1979.126.pdf

Forecasting Economic Time Series

The risks confronted by grain and cotton farmers are of particular interest, given the changing role of the Government after passage of the 1996 Farm Act. With the shift toward less government intervention in the post-1996 Farm Act environment, a more sophisticated understanding of risk and risk management is important to help producers make better decisions in risky situations and to assist policymakers in assessing the effectiveness of different types of risk protection tools. In response, this report provides a rigorous, yet accessible, description of risk and risk management tools and strategies at the farm level. It also provides never-before-published data on farmers' assessments of the risks they face, their use of alternative risk management strategies, and the changes they would make if faced with financial difficulty. It also compares price risk across crops and time periods, and provides detailed information on yield variability.

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Managing Risk in Farming: Concepts, Research, and Analysis

Recent changes in farm policy have renewed interest in using marketing strategies based on futures and options markets to enhance the income of field crop producers. This article reviews the main concepts and associated empirical research of the dominant academic theory concerning the behavior of futures and options markets, namely, the efficient market hypothesis. This rich conceptual and empirical base provides several important insights. One is that, although individuals can beat the market, few can consistently do so. This insight is consistent with Grossman and Stiglitz's model of market efficiency, in which individuals who consistently earn trading returns have superior access to information or superior analytical ability. One implication is that, with few exceptions, the crop producers who survive will be those with the lowest cost of production because efforts to improve revenue through better marketing will have limited success. Some successful marketing strategies do appear to exist, but generally they are based on using the market as a source of information. One example is to base storage decisions on whether the current basis exceeds the cost of storage and then to use hedging to ensure an expected positive return.

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Market Efficiency and Marketing to Enhance Income of Crop Producers

Exploring the attitude of farmers toward risk is important in understanding their managerial decisions, especially given the exposure of farmers to risky events such as drought. However, a survey of the literature finds no study of the risk attitudes of farmers in Turkey. Therefore, this study examines the risk attitudes of farmers in the Lower Seyhan Plain of Turkey. While some variation by utility function exists in the classification of the sampled farmers into risk averse and risk preferring categories, the overwhelming evidence is that the sampled farmers are risk averse. One hundred eighty-two out of 200 estimated Arrow-Pratt risk coefficients imply a risk averse attitude. Thus, these farmers are likely to make managerial decisions that reduce risk, even if the decisions translate into lower income. A policy implication of this finding is that producers are likely to be interested in crop insurance. Ozet: Ureticilerin riske karfl› gosterdikleri davran›fl› bilmek, onlar›n ozellikle kurakl›k gibi riskle ilgili yonetsel kararlar›n› anlamda onemli bir yere sahiptir. Yap›lan literatur cal›flmas›nda, Turkiye'de ureticilerin riske karfl› duyarl›l›klar›n›n bir gostergesi olan mutlak risk katsay›lar› ile ilgili herhangi bir cal›flmaya rastlanmam›flt›r. Bu cal›flma ile, Adana ili, Afla¤› Seyhan Ovas›nda faaliyet gosteren ureticilerin mutlak risk katsay›lar› belirlenmeye cal›fl›lm›flt›r. Ureticilerin kullan›lan fonksiyonun tipine bal› olarak mutlak risk katsay›lar›n›n derecesi deiflmekle birlikte, buyuk counluunun riske karfl› duyarl› olduu saptanm›flt›r. Hesaplanan 200 mutlak risk katsay›s›n›n 182'sinin risk-sevmeyen, geriye kalan 18'inin ise risk-seven bir yap› gosterdii elde edilmifltir. Risk seven yap› gosteren 18 durumun 15'i Kubik fonksiyondan kaynaklanm›flt›r. Boylelikle, ureticilerin iflletmelerinde riski azalt›c› yondeki uygulamalara eilimli olacaklar› ve iyi bir flekilde dizayn edilmifl bir sigorata program›na ilgi duyacaklar› sonucuna varabiliriz.

https://journals.tubitak.gov.tr/agriculture/issues/tar-03-27-5/tar-27-5-7-0303-5.pdf

Risk Attitudes of Farmers in Terms of Risk Aversion: A Case Study of Lower Seyhan Plain Farmers in Adana Province, Turkey

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The soybean complex spread: An examination of market efficiency from the viewpoint of a production process

This study examines whether mean reversion is present in corn, soybean, wheat, live hog, and live cattle futures prices. Consistent with earlier studies, asymptotic regression results provide substantial evidence of mean reversion in commodity futures price movements. In sharp contrast, the Monte Carlo regression analysis does not provide support for the existence of mean reversion in commodity futures prices. A clear implication is that the asymptotic regression results are misleading. The reason is that the small sample distributions of test statistics are not well approximated by assumed asymptotic distributions.

Monte Carlo Analysis of Mean Reversion in Commodity Futures Prices

This article assesses the political economy of the 2014 U.S. farm bill, with a focus on the farm support safety net. The farm bill secured substantial bipartisan majorities in a politically contentious Congress. Planned outlays are predominately for nutrition assistance programs directed toward a traditional nonfarm constituency in the farm bill coalition, while annual fixed direct payments to farmers are eliminated but replaced with enhanced downside risk protection against low prices or revenue. The new support programs may prove more or less costly than the foregone fixed payments, with farmers offered a choice between a price countercyclical program with increased reference prices and a revised moving-average revenue guarantee program. The role of insurance is enhanced, notably by replacing past support programs with a new upland cotton revenue insurance program and dairy milk-to-feed margin protection program. Open policy issues that are highlighted include the costs and distortionary effects of moving-average revenue benchmarks versus fixed reference prices, the overall level of insurance premium subsidies, the potential for overlap between commodity and insurance programs, and lastly, food, environmental, and biofuels concerns that reflect the diverse portfolio of products demanded from agriculture. In an international context, we conclude that the 2014 farm safety net likely would not have been enacted had multilateral agreement been reached on the 2008 Doha Round World Trade Organization negotiating documents. Conversely, the 2014 farm bill makes achieving those limits more difficult. Research is discussed that can elucidate the ongoing political economy of U.S. farm policy and help shape future program design.

Carl Zulauf

Papers

Market Efficiency and Marketing to Enhance Income of Crop Producers

Risk Attitudes of Farmers in Terms of Risk Aversion: A Case Study of Lower Seyhan Plain Farmers in Adana Province, Turkey

The soybean complex spread: An examination of market efficiency from the viewpoint of a production process

Monte Carlo Analysis of Mean Reversion in Commodity Futures Prices

Political Economy of the 2014 Farm Bill