Publication Type
Journal Article
Version
submittedVersion
Publication Date
3-2011
Abstract
This paper evaluates hedge fund performance through portfolio strategies that incorporate predictability based on macroeconomic variables. Incorporating predictability substantially improves out-of-sample performance for the entire universe of hedge funds as well as for various investment styles. While we also allow for predictability in fund risk loadings and benchmark returns, the major source of investment profitability is predictability in managerial skills. In particular, long-only strategies that incorporate predictability in managerial skills outperform their Fung and Hsieh (2004) benchmarks by over 17% per year. The economic value of predictability obtains for different rebalancing horizons and alternative benchmark models. It is also robust to adjustments for backfill bias, incubation bias, illiquidity, fund termination, and style composition.
Keywords
Hedge funds, Predictability, Managerial skills, Macroeconomic variables
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
99
Issue
3
First Page
672
Last Page
692
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2010.10.003
Publisher
Elsevier
Citation
Avramov, Doron; Kosowski, Robert; Naik, Narayan Y.; and Teo, Melvyn.
Hedge Funds, Managerial Skill, and Macroeconomic Variables. (2011). Journal of Financial Economics. 99, (3), 672-692.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1867
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.
Additional URL
https://doi.org/10.1016/j.jfineco.2010.10.003