Hedge fund returns often correlate due to illiquidity exposure and smoothness, shaping performance across different fund styles.
Hedge fund returns often follow a pattern over time, and this is mainly due to how easily the funds can be bought or sold. By studying a large group of hedge funds, researchers found that the way returns are smoothed out can vary depending on the type of fund. This smoothing effect can give us a good idea of how hard it is to quickly turn a hedge fund investment into cash.