Should investors prefer Canadian hedge funds or stocks?

This paper updates Brulhart and Klein (2006) by comparing the magnitude of extreme returns from Tremont, HFRI hedge fund indices with stock indices. It also compares the magnitude of extreme returns from Canadian hedge fund indices with stock indices. We found that the results from Brulhart and Klein hold for the updated US data. However, the results do not hold for the Canadian hedge fund indices. The magnitude of extreme returns from Canadian hedge fund indices is lower than the magnitude of extreme returns from TSX composite, Nasdaq, Tremont and HFRI hedge fund indices, but it is higher than the S&P 500. We believe that is because the composition of the Canadian hedge fund industry is different from the US hedge fund industry. Equity long/short is the most popular hedge fund strategy in Canada, so the Canadian hedge fund industry overall is more similar to the US equity long/short strategy.