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Hedge fund performance attribution under various market conditions

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  • Stafylas, Dimitrios
  • Anderson, Keith
  • Uddin, Moshfique

Abstract

We investigate US hedge funds' performance. Our proposed model contains exogenous and endogenous break points, based on business cycles and on a regime switching process conditional on different states of the market. During difficult market conditions most hedge fund strategies do not provide significant alphas. At such times hedge funds reduce both the number of their exposures to different asset classes and their portfolio allocations, while some strategies even reverse their exposures. Directional strategies share more common exposures under all market conditions compared to non-directional strategies. Factors related to commodity asset classes are more common during these difficult conditions whereas factors related to equity asset classes are most common during good market conditions. Falling stock markets are harsher than recessions for hedge funds.

Suggested Citation

  • Stafylas, Dimitrios & Anderson, Keith & Uddin, Moshfique, 2018. "Hedge fund performance attribution under various market conditions," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 221-237.
    • Handle: RePEc:eee:finana:v:56:y:2018:i:c:p:221-237
    DOI: 10.1016/j.irfa.2018.01.006
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    Cited by:

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    4. Yang, Fan & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2022. "Hedge Fund Performance: A Quantitative Survey," EconStor Preprints 260612, ZBW - Leibniz Information Centre for Economics.
    5. Yang, Fan & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2024. "Where Have All the Alphas Gone? A Meta-Analysis of Hedge Fund Performance," EconStor Preprints 289497, ZBW - Leibniz Information Centre for Economics.
    6. Asif, Raheel & Frömmel, Michael & Mende, Alexander, 2022. "The crisis alpha of managed futures: Myth or reality?," International Review of Financial Analysis, Elsevier, vol. 80(C).
    7. Ma, Tianyi & Tee, Kai-Hong & Li, Baibing, 2022. "Timing the volatility risk of beta anomaly: Evidence from hedge fund strategies," International Review of Financial Analysis, Elsevier, vol. 81(C).
    8. Gregoriou, Greg N. & Racicot, François-Éric & Théoret, Raymond, 2021. "The response of hedge fund tail risk to macroeconomic shocks: A nonlinear VAR approach," Economic Modelling, Elsevier, vol. 94(C), pages 843-872.
    9. Leonardo Badea & Daniel Ştefan Armeanu & Iulian Panait & Ştefan Cristian Gherghina, 2019. "A Markov Regime Switching Approach towards Assessing Resilience of Romanian Collective Investment Undertakings," Sustainability, MDPI, vol. 11(5), pages 1-24, March.
    10. Newton, David & Platanakis, Emmanouil & Stafylas, Dimitrios & Sutcliffe, Charles & Ye, Xiaoxia, 2021. "Hedge fund strategies, performance &diversification: A portfolio theory & stochastic discount factor approach," The British Accounting Review, Elsevier, vol. 53(5).
    11. Stafylas, Dimitrios & Andrikopoulos, Athanasios & Tolikas, Konstantinos, 2023. "Hedge fund performance persistence under different business cycles and stock market regimes," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).

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