Handbook of the Economics of Finance

Chapter 16

Hedge Funds

William Funga and David A. Hsiehb

^aLBS, London, UK

^bFuqua School of Business, Duke University, UK, [e-mail]

Abstract

This chapter begins with a brief history of hedge funds from the perspective of hedge fund investors—exploring the attributes that attracted private, wealthy investors to an opaque, nascent hedge fund industry during the decades leading up to new millennium. Following the chronology of several important market events, the first two sections traces the performance of hedge funds from these early days of the industry to the recent decade during which institutional investor emerged as the dominant investor group—a phenomenon that began shortly after the burst of the dot-com bubble and survives to this ...