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Risk Measures for Autocorrelated Hedge Fund Returns

Author

Listed:
  • Antonio Di Cesare

    (Bank of Italy)

  • Philip A. Stork

    (VU University Amsterdam)

  • Casper G. de Vries

    (Erasmus University Rotterdam)

Abstract

This discussion paper led to a publication in the 'Journal of Financial Econometrics' , 2015, 13(4), 868-895. Standard risk metrics tend to underestimate the true risks of hedge funds becauseof serial correlation in the reported returns. Getmansky et al. (2004) derive mean,variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Followingtheir lead, adjusted downside and global measures of individual and systemic risksare derived. We distinguish between normally and fat tailed distributed returnsand show that adjustment is particularly relevant for downside risk measures in thecase of fat tails. A hedge fund case study reveals that the unadjusted risk measuresconsiderably underestimate the true extent of individual and systemic risks.

Suggested Citation

  • Antonio Di Cesare & Philip A. Stork & Casper G. de Vries, 2011. "Risk Measures for Autocorrelated Hedge Fund Returns," Tinbergen Institute Discussion Papers 11-084/2/DSF 23, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110084
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    References listed on IDEAS

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    Cited by:

    1. Kerstin Lamert & Benjamin R. Auer & Ralf Wunderlich, 2023. "Discretization of continuous-time arbitrage strategies in financial markets with fractional Brownian motion," Papers 2311.15635, arXiv.org.

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    More about this item

    Keywords

    Hedge funds; Serial correlation; Systemic risk; VaR; Pareto distribution.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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