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Hedge Fund Excess Returns Under Time-Varying Beta

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Abstract

We construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, illiquidity and tail events. We also adjust for database biases arising from voluntary self-reporting. Using a constant beta model, we find no evidence of excess returns for the average hedge fund manager between 1994 and 2009. Furthermore, we find no evidence of market timing skill. These conclusions are unchanged when we allow for time-varying beta, volatility clustering and leverage effects. In fact, allowing for dynamics in conditional mean and variance equations further erodes evidence of excess returns.

Suggested Citation

  • Ron Bird & Susan Thorp, 2010. "Hedge Fund Excess Returns Under Time-Varying Beta," Working Paper Series 9, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
    • Handle: RePEc:uts:pwcwps:9
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    File URL: http://www.uts.edu.au/sites/default/files/wp9.pdf
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    Cited by:

    1. Ron Bird & Harry Liem & Susan Thorp, 2014. "Infrastructure: Real Assets and Real Returns," European Financial Management, European Financial Management Association, vol. 20(4), pages 802-824, September.
    2. Ron Bird & Harry Liem & Susan Thorp, 2011. "Private Equity: Strategies for Improving Performance," Working Paper Series 12, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
    3. Paul Woolley, 2010. "Por qué los mercados financieros son tan ineficientes y explotadores, y una propuesta de solución," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 12(23), pages 55-83, July-Dece.

    More about this item

    Keywords

    hedge funds; time-varying beta; GARCH;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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