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Hedge Fund Return Predictability Under the Magnifying Glass

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  • Avramov, Doron
  • Barras, Laurent
  • Kosowski, Robert

Abstract

This paper develops a unified approach to comprehensively analyze individual hedge fund return predictability, both in and out of sample. In sample, we find that variation in hedge fund performance across changing market conditions is widespread and economically significant. The predictability pattern is consistent with economic rationale, and largely reflects differences in key hedge fund characteristics, such as leverage or capacity constraints. Out of sample, we show that a simple strategy that combines the funds’ return forecasts obtained from individual predictors delivers superior performance. We exploit this simplicity to highlight the drivers of this performance, and find that in- and out-of-sample predictability are closely related.

Suggested Citation

  • Avramov, Doron & Barras, Laurent & Kosowski, Robert, 2013. "Hedge Fund Return Predictability Under the Magnifying Glass," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(4), pages 1057-1083, August.
  • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:04:p:1057-1083_00
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