Which way is up? - measuring performance

academic paper

The basis of a quantitative fund selection process consists of adequate absolute performance indicators. In a hedge fund context, risk adjustment plays a primordial role because of the specificities of return distributions.An initial step involves calculating a "raw" return, where contributions, withdrawals, interest, dividends accrued, gains/losses, accrued management fees and transactional fees are taken into account. For example, the Hedgeworks method is as follows:where b is the