A Reassessment of Hedge Fund Returns Using Daily Return Data

When measured with daily return data, hedge fund factor exposures are more statistically significant than when measured with monthly data. Consequently, daily data can significantly improve investors’ hedge fund portfolios. Furthermore, daily data reveal that hedge funds have lower alphas and are exposed to more factors, and these exposures are more time-varying, than monthly data suggest. Analysis of hedge fund exposures with a comprehensive universe of daily variables reveals the importance of a new commodity put factor and of new liquidity timing effects for factors other than the market.