Publication Type
Conference Paper
Version
acceptedVersion
Publication Date
8-2007
Abstract
This paper evaluates hedge fund performance through portfolio strategies that incorporate predictability in managerial skills, fund risk loadings, and benchmark returns. Incorporating predictability substantially improves performance for the entire universe of hedge funds as well as various subsets based on investment styles. Such out-performance is strongest during market downturns when the marginal utility of consumption is relatively high. Moreover, the major source of investment profitability is predictability in managerial skills. In particular, long-only strategies that incorporate predictable skills outperform their Fung and Hsieh (2004) benchmarks by over 12 percent per year. The economic value of predictability obtains for various rebalancing horizons and is robust to style adjustments as well as adjustments for backfill bias, incubation bias, illiquidity-induced serial correlation, and fees.
Keywords
Hedge Funds, Time-Varying Managerial Skills, Asset Allocation
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Areas of Excellence
Finance and Financial Markets
Publication
European Finance Association Meeting 2007, August 22-25
First Page
1
Last Page
33
City or Country
Ljubljana, Slovenia
Citation
AVRAMOV, Doron; KOSOWSKI, Robert; NAIK, Narayan Y.; and TEO, Melvyn.
Investing in Hedge Funds when Returns are Predictable. (2007). European Finance Association Meeting 2007, August 22-25. 1-33.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1428
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.