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The impact of hedge fund indices on portfolio performance

Author

Listed:
  • Maria Teresa Medeiros Garcia
  • Gonçalo Liberal

Abstract

The purpose of this paper is to assessthecombination of investable hedge funds indices with a traditional portfolio of 60% stocks and40% bonds.The S&P 500 Index,the Barclays US Aggregate Bond Index, and threeinvestable hedge fund indices,the MEBI Maximum Sharpe Ratio L1Index, the MEBI Zero Beta Strategy L1Index, and the Eurekahedge ILS Advisers Index, were considered to conduct performance comparison, using time windows of two, five and ten years, from the 1st of January,2006,to the 1st 2of February, 2016. Significant reduction of the beta of the overall portfolio is reached. The findings showed that the investable hedge fund indices under analysis can be used as an easy way to protect a portfolio during different market conditions, diversifying the risks of the traditional investment portfolios.The paper provides evidence of how investable hedge fund indices lead to an improvement in the performance results,when compared with the traditional global equity-bond portfolio alone.

Suggested Citation

  • Maria Teresa Medeiros Garcia & Gonçalo Liberal, 2019. "The impact of hedge fund indices on portfolio performance," Working Papers REM 2019/85, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0852019
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_085_2019.pdf
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    References listed on IDEAS

    as
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    3. Fung, William & Hsieh, David A., 2000. "Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 291-307, September.
    4. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, June.
    5. Brown, Stephen J & Goetzmann, William N & Ibbotson, Roger G, 1999. "Offshore Hedge Funds: Survival and Performance, 1989-95," The Journal of Business, University of Chicago Press, vol. 72(1), pages 91-117, January.
    6. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    8. Vikas Agarwal & Vyacheslav Fos & Wei Jiang, 2013. "Inferring Reporting-Related Biases in Hedge Fund Databases from Hedge Fund Equity Holdings," Management Science, INFORMS, vol. 59(6), pages 1271-1289, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Markowitz portfolio theory; optimal portfolios; investable hedge fund index; performance evaluation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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