This paper aims to analyze hedge fund index behavior over the 9-year period ranging from January 1994 to December 2002 with help of various statistical measures. The results indicate that hedge fund returns are not normally distributed and exhibit first order autocorrelation, a phenomenon known as smoothing or stale price bias. Entire period correlations between 13 hedge fund indices and 85 market factors provide evidence that most of hedge fund styles show strong positive correlations with equity and real estate indices, and negative correlations with volatility index. Two exceptions are Dedicated Short Bias and Long Short Equity indices, which exhibit significant negative correlations with equity indices but positive correlations with volatility index. However, these correlations vary over time, depending on market conditions. The results also reveal that hedge funds generally underperform than the market in upward periods but do better than the market in downward ones. Dedicated Short Bias and Long Short Equity are the only ones that make loss in upward markets and make profits in downside market.