Hedge Fund Return Predictability In The Presence Of Model Uncertainty And Implications For Wealth Allocation
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Hedge Fund Return Predictability In The Presence Of Model Uncertainty And Implications For Wealth Allocation
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Author : Ioannis D. Vrontos
language : en
Publisher:
Release Date : 2008
Hedge Fund Return Predictability In The Presence Of Model Uncertainty And Implications For Wealth Allocation written by Ioannis D. Vrontos 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 studies hedge fund return predictability in a multivariate setting. Our research design and analysis is motivated by the empirical observations that a specific forecasting model that is going to perform well is not known ex-ante and that modelling time varying return covariances/correlations improves our ability to construct optimal hedge fund portfolios. We employ a multivariate GARCH specification to model time-varying covariances/correlations of hedge fund returns and we develop a stochastic search algorithm to compute posterior model probabilities for alternative predictive specifications. Our empirical analysis indicates that introducing dynamic covariance/correlation modeling improves the out-of-sample performance of optimal hedge fund portfolios. Moreover, introducing predictive factors provides incremental additional portfolio outperformance.
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.
Portfolio Structuring And The Value Of Forecasting
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Author : Jacques Lussier
language : en
Publisher: CFA Institute Research Foundation
Release Date : 2016-10-10
Portfolio Structuring And The Value Of Forecasting written by Jacques Lussier and has been published by CFA Institute Research Foundation this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-10-10 with Business & Economics categories.
Empirical Asset Pricing
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Author : Wayne Ferson
language : en
Publisher: MIT Press
Release Date : 2019-03-12
Empirical Asset Pricing written by Wayne Ferson and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-03-12 with Business & Economics categories.
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Heterogeneity And Persistence In Returns To Wealth
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Author : Andreas Fagereng
language : en
Publisher: International Monetary Fund
Release Date : 2018-07-27
Heterogeneity And Persistence In Returns To Wealth written by Andreas Fagereng and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-07-27 with Business & Economics categories.
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Strategic Asset Allocation
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Author : John Y. Campbell
language : en
Publisher: OUP Oxford
Release Date : 2002-01-03
Strategic Asset Allocation written by John Y. Campbell and has been published by OUP Oxford this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-01-03 with Business & Economics categories.
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Hedge Funds
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Author : Vikas Agarwal
language : en
Publisher: Now Publishers Inc
Release Date : 2005
Hedge Funds written by Vikas Agarwal and has been published by Now Publishers Inc this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Business & Economics categories.
Hedge Funds summarizes the academic research on hedge funds and commodity trading advisors. The hedge fund industry has grown tremendously over the recent years. According to some industry estimates, hedge funds have increased from $39 million in 1990 to about $972 million in 2004 and the total number of hedge funds has gone up from 610 to 7,436 over the same period. At the same time, hedge fund strategies have changed significantly. In 1990 the macro strategy dominated the industry while in 2004 the equity hedge strategy had the largest share of the market. There has also been a shift in the type of investor in hedge funds. In the early 1990's the typical investor was a high net-worth individual investor, today the typical investor is an institutional investor. Thus, the hedge fund market has not only grown tremendously, but the nature of the market has changed. Despite the enormous growth of this industry, there is limited information available on hedge funds. As a result, there is a need for rigorous research from both the investors' and regulators' point of view. Investors need research to better understand their investment and their risk exposure. This research also helps investors recognize the extent of diversification benefits hedge funds offer in combination with investments in traditional asset classes, such as stocks and bonds. Regulators can use this research to identify situations where regulation may be needed to protect investors' interests and to understand the impact hedge funds trading strategies have on the stability of the financial markets. The first part of Hedge Funds summarizes hedge fund performance, including comparisons of risk-return characteristics of hedge funds with those of mutual funds, factors driving hedge fund returns, and persistence in hedge fund performance. The second part reviews research regarding the unique contractual features and characteristics of hedge funds and their influence on the risk-return tradeoffs. The third part reviews the role of hedge funds in a portfolio including the extent of diversification benefits and limitations of standard mean-variance framework for asset allocation. Finally, the authors summarize the research on the biases in hedge fund databases.
Handbook Of Hedge Funds
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Author : François-Serge Lhabitant
language : en
Publisher: John Wiley & Sons
Release Date : 2011-03-23
Handbook Of Hedge Funds written by François-Serge Lhabitant and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-03-23 with Business & Economics categories.
A comprehensive guide to the burgeoning hedge fund industry Intended as a comprehensive reference for investors and fund and portfolio managers, Handbook of Hedge Funds combines new material with updated information from Francois-Serge L’habitant’s two other successful hedge fund books. This book features up-to-date regulatory and historical information, new case studies and trade examples, detailed analyses of investment strategies, discussions of hedge fund indices and databases, and tips on portfolio construction. Francois-Serge L’habitant (Geneva, Switzerland) is the Head of Investment Research at Kedge Capital. He is Professor of Finance at the University of Lausanne and at EDHEC Business School, as well as the author of five books, including Hedge Funds: Quantitative Insights (0-470-85667-X) and Hedge Funds: Myths & Limits (0-470-84477-9), both from Wiley.
Factor Investing And Asset Allocation A Business Cycle Perspective
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Author : Vasant Naik
language : en
Publisher: CFA Institute Research Foundation
Release Date : 2016-12-30
Factor Investing And Asset Allocation A Business Cycle Perspective written by Vasant Naik and has been published by CFA Institute Research Foundation this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-12-30 with Business & Economics categories.
Asset Pricing And Portfolio Performance
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Author : Robert A. Korajczyk
language : en
Publisher:
Release Date : 1999
Asset Pricing And Portfolio Performance written by Robert A. Korajczyk and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Business & Economics categories.
A comprehensive reference work presenting an original framework for evaluating observed differences in returns across assets.