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Assessing Market Risk for Hedge Funds Portfolios

Author

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  • François-Serge LHABITANT

    (Union Bancaire Privée and Thunderbird, the AmericanGraduate School of International Management)

Abstract

We suggest an empirical model to analyze the investment style of individual hedge funds and funds of funds. Our approach is based on a mixture of the style analysis approach suggested by Sharpe (1988), the factor push approach used in stress testing, and historical simulation. An interesting and straightforward extension of this model is the estimation of value-at-risk (VaR) figures. This extension is tested using a very intuitive implementation over a large sample of 2,934 hedge funds over the 1994-2000 period. Both the in-the-sample and the out-of-sample results suggest that the proposed approach is useful and may constitute a valuable tool for assessing the investment style and risk of hedge funds.

Suggested Citation

  • François-Serge LHABITANT, 2001. "Assessing Market Risk for Hedge Funds Portfolios," FAME Research Paper Series rp24, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp24
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    File URL: http://www.swissfinanceinstitute.ch/rp24.pdf
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    Citations

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    Cited by:

    1. Wong, Wing-Keung & Phoon, Kok Fai & Lean, Hooi Hooi, 2008. "Stochastic dominance analysis of Asian hedge funds," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 204-223, June.
    2. Agarwal, Vikas & Kale, Jayant R., 2007. "On the relative performance of multi-strategy and funds of hedge funds," CFR Working Papers 07-11, University of Cologne, Centre for Financial Research (CFR).
    3. Gupta, Anurag & Liang, Bing, 2005. "Do hedge funds have enough capital? A value-at-risk approach," Journal of Financial Economics, Elsevier, vol. 77(1), pages 219-253, July.
    4. Izabela Pruchnicka-Grabias, 2014. "The Influence Of Confidence Level, Correlation And Volatility On Value At Risk. Six Case Studies," Interdisciplinary Management Research, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Croatia, vol. 10, pages 565-581.
    5. Benoît Dewaele, 2013. "Leverage and Alpha: The Case of Funds of Hedge Funds," Working Papers CEB 13-033, ULB -- Universite Libre de Bruxelles.
    6. Scorbureanu, Alexandrina Ioana, 2013. "Multi-Index Evaluation of Alternative Assets Funds. Time Lagged Effects and Linear Factors Capturing Non-linear Effects," MPRA Paper 50208, University Library of Munich, Germany.
    7. Benoît Dewaele, 2013. "Portfolio Optimization for Hedge Funds through Time-Varying Coefficients," Working Papers CEB 13-032, ULB -- Universite Libre de Bruxelles.
    8. Alias, Amanina, 2019. "“Effect OF ROA towards Internal Factors and External Factors for MMC Corporation Berhad"," MPRA Paper 97163, University Library of Munich, Germany, revised 15 Oct 2019.
    9. Montshioa, Keitumetse & Muteba Mwamba, John Weirstrass & Bonga-Bonga, Lumengo, 2021. "Asset allocation in extreme market conditions: a comparative analysis between developed and emerging economies," MPRA Paper 106248, University Library of Munich, Germany.
    10. Ewelina Sokołowska, 2017. "Does growing wealth influence hedge funds’ development? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 49(8), pages 756-768, February.

    More about this item

    Keywords

    hedge funds; style analysis; value at risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

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