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Passive Hedge Fund Replication – Beyond the Linear Case

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Listed:
  • Noël Amenc
  • Lionel Martellini
  • Jean†Christophe Meyfredi
  • Volker Ziemann

Abstract

In this paper we extend Hasanhodzic and Lo (2007) by assessing the out†of†sample performance of various non†linear and conditional hedge fund replication models. We find that going beyond the linear case does not necessarily enhance the replication power. On the other hand, we find that selecting factors on the basis on an economic analysis allows for a substantial improvement in out†of†sample replication quality, whatever the underlying form of the factor model. Overall, we confirm the findings in Hasanhodzic and Lo (2007)that the performance of the replicating strategies is systematically inferior to that of the actual hedge funds.

Suggested Citation

  • Noël Amenc & Lionel Martellini & Jean†Christophe Meyfredi & Volker Ziemann, 2010. "Passive Hedge Fund Replication – Beyond the Linear Case," European Financial Management, European Financial Management Association, vol. 16(2), pages 191-210, March.
    • Handle: RePEc:bla:eufman:v:16:y:2010:i:2:p:191-210
    DOI: 10.1111/j.1468-036X.2008.00448.x
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    3. Mario Fischer & Matthias X. Hanauer & Robert Heigermoser, 2016. "Synthetic hedge funds," Review of Financial Economics, John Wiley & Sons, vol. 29(1), pages 12-22, April.
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    5. Jun Duanmu & Yongjia Li & Alexey Malakhov, 2020. "Capturing hedge fund risk factor exposures: Hedge fund return replication with ETFs," The Financial Review, Eastern Finance Association, vol. 55(3), pages 405-431, August.
    6. Stephen A. Gorman & Frank J. Fabozzi, 2021. "The ABC’s of the alternative risk premium: academic roots," Journal of Asset Management, Palgrave Macmillan, vol. 22(6), pages 405-436, October.

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