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Short-term hedge fund performance

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  • Slavutskaya, Anna

Abstract

Hedge fund returns are often explained using linear factor models such as Fung and Hsieh (2004). However, since most hedge funds live only for 3years, these linear regressions are subject to over-parameterization. I improve the out-of-sample accuracy of the linear factor model by combining cross-sectional and time series information for groups of hedge funds with similar investment strategies. The additional cross-sectional information allows more accurate estimates of risk exposures. I also propose a trading strategy based on this methodology for extracting substantially larger risk-adjusted returns.

Suggested Citation

  • Slavutskaya, Anna, 2013. "Short-term hedge fund performance," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4404-4431.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4404-4431
    DOI: 10.1016/j.jbankfin.2013.07.034
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    References listed on IDEAS

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    Cited by:

    1. Canepa, Alessandra & de la O. González, María & Skinner, Frank S., 2020. "Hedge fund strategies: A non-parametric analysis," International Review of Financial Analysis, Elsevier, vol. 67(C).
    2. Agarwal, Vikas & Mullally, Kevin A. & Naik, Narayan Y., 2015. "The Economics and Finance of Hedge Funds: A Review of the Academic Literature," Foundations and Trends(R) in Finance, now publishers, vol. 10(1), pages 1-111, December.
    3. María dela O. González & Nicolas A. Papageorgiou & Frank S. Skinner, 2016. "Persistent Doubt: An Examination of Hedge Fund Performance," European Financial Management, European Financial Management Association, vol. 22(4), pages 613-639, September.
    4. Nicola Metzger & Vijay Shenai, 2019. "Hedge Fund Performance during and after the Crisis: A Comparative Analysis of Strategies 2007–2017," IJFS, MDPI, vol. 7(1), pages 1-31, March.
    5. Stafylas, Dimitrios & Anderson, Keith & Uddin, Moshfique, 2017. "Recent advances in explaining hedge fund returns: Implicit factors and exposures," Global Finance Journal, Elsevier, vol. 33(C), pages 69-87.

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    More about this item

    Keywords

    Hedge fund modeling; Short sample; Persistence; Panel data; Shrinkage;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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