All Style Hedge Fund Analysis With Constant And Time Varying Factor Loading Models
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All Style Hedge Fund Analysis With Constant And Time Varying Factor Loading Models
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Author : Christian Schmidiger
language : en
Publisher:
Release Date : 2017
All Style Hedge Fund Analysis With Constant And Time Varying Factor Loading Models written by Christian Schmidiger and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Driven by vast historical growth and the recent crises, the hedge fund industry has undergone several changes. This thesis presents studies on the analysis of hedge fund returns within changing market states by applying different constant, asymmetric and time-varying factor loading models. Considered models include the CAPM, Fama-French 3-factor model, Carhart 4-factor model, Fama-French 5-Factor model, Agarwal-Naik 8-factor model and the Fung-Hsieh 7- and 8-factor models. In addition, and unlike previous research, 94 hedge fund strategy styles have been analysed individually to test whether the model performances differ among approaches.The first full-sample analysis exhibits generally low explanatory power whereby the more sophisticated models perform superiorly. Equity strategies, especially long-only funds, exhibit high adjusted R-Squared among all models, while fixed income, fundamental and technical hedge funds result in low significance. The CUSUM control chart based crisis/non-crisis dummy cannot substantially improve the explanatory power of the models. Hedge fund alpha and factor significance varies considerably among strategies and the power of the models remains similarly poor. Asymmetric up/down models exhibit slightly improved explanatory power while the significance of alpha diminishes. Replacing the conditional up/down variable by the crisis/non-crisis setting resulted in inferior results. Empirical analysis with asymmetric higher-moment models approves the asymmetries in hedge fund returns partially. Moreover, a time-varying approach substantially improves the explanatory power of all models while hedge fund alpha further diminishes. All dynamic models exhibit significant exposures on macro state variables for a high proportion of funds. To summarise, it has been shown how simple models can be fitted to increase the explanatory power. As a result, the adjusted R-Squared were improved by 73%. On a strategy level, equity funds are explained the best while fixed income, fundamental and technical hedge funds are the most difficult to analyse.
Evaluating Hedge Fund Performances A Comparison Of Factor Models
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Author : Andreas Kuhn
language : en
Publisher:
Release Date : 2016
Evaluating Hedge Fund Performances A Comparison Of Factor Models written by Andreas Kuhn and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
The purpose of this study is to identify a factor model for a broad assessment of risk-adjusted hedge fund returns. For this reason, the study compares and evaluates four classical factors models. These models include the CAPM, the Fama and French three-factor model, the Fama and French five-factor model and the Fung and Hsieh seven-factor model. The study is based on the time period from 1994-2013. We conduct multiple ordinary least square regressions on different hedge fund strategies. The analysis demonstrates that the Fung and Hsieh seven-factor model captured on average the largest part of the hedge fund return variation. Most importantly, it is able to capture non-linear return patterns that other models are missing. Thus, the model seems to be a good choice for a broad assessment of hedge fund performances. However, the full and sub-period regressions on all four models result in very similar mean alphas excluding certain non-linear strategy returns. This means there are no major qualitative differences in the average risk-adjusted hedge fund returns. Through showing that the Fung and Hsieh seven-factor model stated the highest explanatory power in our study, this research contributes further insights in the ongoing discussion of a generally accepted factor model to assess risk-adjusted hedge fund returns.
Evaluating Hedge Fund And Cta Performance
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Author : Greg N. Gregoriou
language : en
Publisher: Wiley
Release Date : 2005-05-06
Evaluating Hedge Fund And Cta Performance written by Greg N. Gregoriou and has been published by Wiley this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-05-06 with Business & Economics categories.
Introducing Data Envelopment Analysis (DEA) -- a quantitative approach to assess the performance of hedge funds, funds of hedge funds, and commmodity trading advisors. Steep yourself in this approach with this important new book by Greg Gregoriou and Joe Zhu. "This book steps beyond the traditional trade-off between single variables for risk and return in the determination of investment portfolios. For the first time, a comprehensive procedure is presented to compose portfolios using multiple measures of risk and return simultaneously. This approach represents a watershed in portfolio construction techniques and is especially useful for hedge fund and CTA offerings." -- Richard E. Oberuc, CEO, Burlington Hall Asset Management, Inc. Chairman, Foundation for Managed Derivatives Research Order your copy today!
Return Based Style Analysis With Time Varying Exposures
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Author : Laurens Swinkels
language : en
Publisher:
Release Date : 2013
Return Based Style Analysis With Time Varying Exposures written by Laurens Swinkels and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This paper focuses on the estimation of mutual fund styles by return-based style analysis. Often the investment style is assumed to be constant through time. Alternatively, time variation is sometimes implicitly accounted for by using rolling regressions when estimating the style exposures. The former assumption is often contradicted empirically, and the latter is inefficient due to its ad hoc chosen window size. We propose to use the Kalman filter to model time-varying exposures of mutual funds explicitly. This leads to a testable model and more efficient use of the data, which reduces the influence of spurious correlation between mutual fund returns and style indices. Several stylized examples indicate that more reliable style estimates can be obtained by modeling the style exposure as a random walk, and estimating the coefficients with the Kalman filter. The differences with traditional techniques are substantial in our stylized examples. The results from our empirical analyses indicate that the structural model estimated by the Kalman filter improves style predictions and influences results on performance measurement.
Time Varying Factor Models For Equity Portfolio Management
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Author : Markus Ebner
language : en
Publisher:
Release Date : 2007
Time Varying Factor Models For Equity Portfolio Management written by Markus Ebner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
Return Smoothing And Its Implications For Performance Analysis Of Hedge Funds
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Author : Jing-Zhi Huang
language : en
Publisher:
Release Date : 2018
Return Smoothing And Its Implications For Performance Analysis Of Hedge Funds written by Jing-Zhi Huang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
Return smoothing and performance persistence are both sources of autocorrelation in hedge fund returns. The practice of pre-processing the data in order to remove smoothing before conducting performance analysis also affects the predictability of hedge fund returns. This paper develops a Bayesian framework for the performance evaluation of hedge funds that simultaneously accounts for smoothing, time-varying performance and factor loadings, and the short-lived nature of reported returns. Simulation evidence reveals that ldquo;unsmoothingrdquo; predictable, persistent hedge fund returns reduces the ability to detect performance persistence in the second step of the analysis. Empirically, smoothing generates severe biases in standard estimates of abnormal performance, factor loadings, and idiosyncratic volatility. In particular, for funds with high systematic risk, a standard deviation increase in smoothing implies an upward bias in alpha; in excess of 2% annually and a downward bias in equity market beta of more than 20%. For funds with low systematic risk exposure, the smoothing bias is most apparent in estimates of idiosyncratic volatility.
Dynamic Hedge Fund Style Analysis With Errors In Variables
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Author : Laurent Bodson
language : en
Publisher:
Release Date : 2008
Dynamic Hedge Fund Style Analysis With Errors In Variables written by Laurent Bodson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
This paper revisits the traditional return-based style analysis (RBSA) in presence of time-varying exposures and errors-in-variables (EIV). We first apply a selection algorithm using the Kalman filter to identify the more appropriate benchmarks for the analysed fund return. Then, we compute their corresponding higher moment estimated errors-in-variables, i.e. the measurement error series introducing the (cross) moments of order three and four. We adjust the selected benchmarks by subtracting their higher moments estimated EIV from the initial return series, to obtain an estimate of the true uncontaminated benchmarks. We finally run the Kalman filter on these adjusted regressors. Analysing EDHEC alternative indexes styles, we show that this technique improves the factor loadings and permits to identify more precisely the return sources of the considered hedge fund strategy.
Net Inflows And Time Varying Alphas
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Author : Andrea Beltratti
language : en
Publisher:
Release Date : 2013
Net Inflows And Time Varying Alphas written by Andrea Beltratti and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
We introduce a multivariate components model for returns and net relative inflows into hedge funds, accounting for time-varying market premia. We estimate alpha as an unobserved variable of the econometric model. We then assess whether several categories of hedge funds do produce alphas and whether the latter are related to capital inflows. Our results point to a positive correlation between past alphas and future flows and a negative relation between past flows and future alphas in the case of arbitrage-based styles. We do not find any structural decline in alpha for most hedge fund categories.
Forecasting The Performance Of Hedge Fund Styles
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Author : Jose Olmo
language : en
Publisher:
Release Date : 2012
Forecasting The Performance Of Hedge Fund Styles written by Jose Olmo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
This article predicts the relative performance of hedge fund investment styles one period ahead using time-varying conditional stochastic dominance tests. These tests allow the construction of dynamic trading strategies based on nonparametric density forecasts of hedge fund returns. During the recent financial turmoil, our tests predict a superior performance of the Global Macro investment style compared to the other `Directional Traders' strategies. The Dedicated Short Bias investment style is, on the other hand, stochastically dominated by the other directional styles. These results are confirmed by simple nonparametric tests constructed from the realized excess returns. Further, by exploiting the cross-validation method for optimal bandwidth parameter selection, we find out which factors have predictive power for the density of hedge fund returns. We observe that different factors have forecasting power for different regions of the returns distribution and, more importantly, Fung and Hsieh factors have power not only for describing the risk premium but also for density forecasting if appropriately exploited.
Hedge Fund Return Predictability In The Presence Of Model Risk
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Author : Christos Argyropoulos
language : en
Publisher:
Release Date : 2019
Hedge Fund Return Predictability In The Presence Of Model Risk written by Christos Argyropoulos and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Hedge funds implement elaborate investment strategies that include a variety of positions and assets. As a result, there is significant time variation in the set of risk factors and their respective loadings which in turn introduces severe model risk in any attempt to model and forecast hedge fund returns. In this study, we investigate the statistical and economic value of incorporating heteroscedasticity, non-normality, time-varying parameters, model selection risk and parameter estimation risk jointly in hedge fund return forecasting and fund of funds construction. Parameter estimation risk is dealt with a time-varying parameter structure, while model selection uncertainty is mitigated by model averaging or model selection. We adopt a dynamic model averaging approach along with the conventional Bayesian averaging technique. Our empirical results suggest that accounting for model risk can significantly improve the forecasting accuracy of hedge fund returns and, consequently, the performance of funds of hedge funds.