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In this article, we estimate several augmented Treynor and Mazuy (1966) models to examine the performance of hedge fund index returns in four different emerging market regions. In our estimations we match the fund returns with the regional emerging market equity and bond index data, which is a research approach that is pioneered by Fung et al. (2002). Whether market volatility affects the hedge fund returns or not is one of the main questions that we ask in the article. Our results reveal that stock and bond market volatility do not have a significant impact on fund returns for the most part, which is a result that is robust to various measures of volatility. Among the four regions we examine, only the emerging market hedge funds in the Global market yield statistically significant positive alphas that is robust and sizable. We also find no evidence for market timing skills in these emerging market hedge fund returns.
