International Journal For Multidisciplinary Research

E-ISSN: 2582-2160     Impact Factor: 9.24

A Widely Indexed Open Access Peer Reviewed Multidisciplinary Bi-monthly Scholarly International Journal

Call for Paper Volume 7, Issue 3 (May-June 2025) Submit your research before last 3 days of June to publish your research paper in the issue of May-June.

Unobserved Performance In Hedge Funds A Hidden Dimension Of Investment

Author(s) Mr. Mudit Srivastava, Dr. Parul Tandan
Country India
Abstract This study sheds light on critical but often overlooked risks in hedge fund performance, such as liquidity mismatches, operational flaws, and extreme event exposures, which can distort traditional evaluation metrics. By combining a quantitative analysis of survivorship-bias-adjusted hedge fund data (2000–2024) with qualitative insights from over 50 industry professionals, including fund managers, investors, and regulators, this study reveals three key hidden risk dimensions: liquidity challenges, data biases, and regulatory gaps, which together explain 68% of performance misrepresentations. Traditional measures, such as the Sharpe ratio, were found to overstate risk-adjusted returns by 10–20% once these hidden risks were accounted for. Role-based analysis highlighted differing perspectives: regulators pushed for transparency (p = 0.003), while managers were wary of conventional tools due to their firsthand exposure to these risks (p = 0.015). To address these issues, this study proposes practical solutions, including a liquidity-adjusted Sharpe ratio and an operational risk dashboard, along with policy recommendations for more transparent disclosures regarding illiquid assets, fees, and leverage. Overall, this study offers a more realistic, resilience-focused approach to hedge fund evaluation that aims to strengthen investor protection and reduce systemic risk.
Keywords Hedge funds, unobserved performance, liquidity risk, operational risk, survivorship bias, factor analysis, regulatory transparency.
Field Business Administration
Published In Volume 7, Issue 3, May-June 2025
Published On 2025-05-07
DOI https://doi.org/10.36948/ijfmr.2025.v07i03.43937
Short DOI https://doi.org/g9hsj5

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