Hedge Funds with Style

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Abstract
The popular perception is that hedge funds follow a reasonably well-defined market-neutral investment style. Investigation of the monthly return history of hedge funds over 1989–2000, however, finds there are in fact distinct styles of management that account for about 20% of the cross-sectional variability in performance. This result is consistent across the years in the sample and robust as to the way investment style is determined. Appropriate style analysis and style management are crucial to success for investors looking to invest in hedge funds.