Correspondence: Donald Vandegrift, School of Business, The College of New Jersey, 2000 Pennington Road, Ewing, NJ 08628-0718, USA. E-mail: vandedon@tcnj.edu

¹is a recent graduate of the Economics Department of The College of New Jersey.

²is Professor of Economics at The College of New Jersey. His primary areas of research are regulatory issues, medical care spending and experimental tests of labor market compensation schemes. His recent research has been published in the Southern Economic Journal, Experimental Economics, Labour Economics, Health & Place and Contemporary Economic Policy, among others.

Received 10 October 2008; Revised 10 October 2008.

Abstract

In this study, hedge fund returns in excess of the S&P 500 were analyzed to determine the effects of beta, fund size, age and enforced registration in 2006 as a result of Rule 203(b)(3)-2. It was discovered that beta had a positive effect on performance, while the increasing age of a fund caused managers to suffer from 'style drift', thereby reducing the hedge fund's performance. It was also found that registration increased returns by 11.6 per cent by raising the net worth requirement for accredited investors, thereby providing funds with a more knowledgeable investor and increased asset base stability. This suggests that advisers have been able to use funds more efficiently by taking on more leveraged positions and holding less cash on hand, while pursuing a greater number of strategies.