Advanced Search
MyIDEAS: Login to save this article or follow this journal

On the High-Frequency Dynamics of Hedge Fund Risk Exposures

Contents:

Author Info

  • ANDREW J. PATTON
  • TARUN RAMADORAI

Abstract

We propose a new method to model hedge fund risk exposures using relatively high frequency conditioning variables. In a large sample of funds, we find substantial evidence that hedge fund risk exposures vary across and within months, and that capturing within-month variation is more important for hedge funds than for mutual funds. We consider different within-month functional forms, and uncover patterns such as day-of-the-month variation in risk exposures. We also find that changes in portfolio allocations, rather than changes in the risk exposures of the underlying assets, are the main drivers of hedge funds' risk exposure variation.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1111/jofi.12008
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 68 (2013)
Issue (Month): 2 (04)
Pages: 597-635

as in new window
Handle: RePEc:bla:jfinan:v:68:y:2013:i:2:p:597-635

Contact details of provider:
Web page: http://www.afajof.org/
More information through EDIRC

Order Information:
Web: http://www.afajof.org/membership/join.asp

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Laurent BARRAS & Olivier SCAILLET & Russ WERMERS, 2005. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 08-18, Swiss Finance Institute, revised Sep 2008.
  2. Nicolas P.B. Bollen & Veronika K. Pool, 2009. "Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution," Journal of Finance, American Finance Association, American Finance Association, vol. 64(5), pages 2257-2288, October.
  3. Ferson, Wayne & Khang, Kenneth, 2002. "Conditional performance measurement using portfolio weights: evidence for pension funds," Journal of Financial Economics, Elsevier, Elsevier, vol. 65(2), pages 249-282, August.
  4. Getmansky, Mila & Lo, Andrew & Makarov, Igor, 2003. "An Econometric Model of Serial Correlation and Illiquidity In Hedge Fund Returns," Working papers 4288-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 98-004, New York University, Leonard N. Stern School of Business-.
  6. Wayne E. Ferson & Sergei Sarkissian & Timothy Simin, 2006. "Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression," NBER Working Papers 12658, National Bureau of Economic Research, Inc.
  7. Nicolas P.B. Bollen & Robert E. Whaley, 2009. "Hedge Fund Risk Dynamics: Implications for Performance Appraisal," Journal of Finance, American Finance Association, American Finance Association, vol. 64(2), pages 985-1035, 04.
  8. Chen, Zhiwu & Knez, Peter J, 1996. "Portfolio Performance Measurement: Theory and Applications," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 511-55.
  9. Sullivan, Ryan & Timmermann, Allan G & White, Halbert, 1998. "Data-Snooping, Technical Trading Rule Performance and the Bootstrap," CEPR Discussion Papers 1976, C.E.P.R. Discussion Papers.
  10. William Fung & David A. Hsieh & Narayan Y. Naik & Tarun Ramadorai, 2008. "Hedge Funds: Performance, Risk, and Capital Formation," Journal of Finance, American Finance Association, American Finance Association, vol. 63(4), pages 1777-1803, 08.
  11. Admati, Anat R, et al, 1986. " On Timing and Selectivity," Journal of Finance, American Finance Association, American Finance Association, vol. 41(3), pages 715-30, July.
  12. Aragon, George O., 2007. "Share restrictions and asset pricing: Evidence from the hedge fund industry," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(1), pages 33-58, January.
  13. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
  14. Vikas Agarwal & Naveen D. Daniel & Narayan Y. Naik, 2011. "Do Hedge Funds Manage Their Reported Returns?," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3281-3320.
  15. William Goetzmann & Jonathan Ingersoll & Zoran Ivkovich, 1998. "Monthly Measurement of Daily Timers," Yale School of Management Working Papers, Yale School of Management ysm88, Yale School of Management, revised 01 Oct 2000.
  16. Ravi Jagannathan & Alexey Malakhov & Dmitry Novikov, 2006. "Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation," NBER Working Papers 12015, National Bureau of Economic Research, Inc.
  17. Markus K. Brunnermeier & Lasse Heje Pedersen, 2004. "Predatory Trading," NBER Working Papers 10755, National Bureau of Economic Research, Inc.
  18. Kosowski, Robert & Naik, Narayan Y. & Teo, Melvyn, 2007. "Do hedge funds deliver alpha? A Bayesian and bootstrap analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 84(1), pages 229-264, April.
  19. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, American Finance Association, vol. 54(3), pages 833-874, 06.
  20. Chance, Don M. & Hemler, Michael L., 2001. "The performance of professional market timers: daily evidence from executed strategies," Journal of Financial Economics, Elsevier, Elsevier, vol. 62(2), pages 377-411, November.
  21. Andrews, Donald W. K. & Lee, Inpyo & Ploberger, Werner, 1996. "Optimal changepoint tests for normal linear regression," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 9-38, January.
  22. Christopherson, Jon A & Ferson, Wayne E & Glassman, Debra A, 1998. "Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance," Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 111-42.
  23. William N. Goetzmann & Jonathan E. Ingersoll & Stephen A. Ross, 2003. "High-Water Marks and Hedge Fund Management Contracts," Journal of Finance, American Finance Association, American Finance Association, vol. 58(4), pages 1685-1718, 08.
  24. Chen, Yong & Liang, Bing, 2007. "Do Market Timing Hedge Funds Time the Market?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(04), pages 827-856, December.
  25. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
  26. Melvyn Teo, 2009. "The Geography of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3531-3561, September.
  27. Ghysels, Eric & Santa-Clara, Pedro & Valkanov, Rossen, 2006. "Predicting volatility: getting the most out of return data sampled at different frequencies," Journal of Econometrics, Elsevier, Elsevier, vol. 131(1-2), pages 59-95.
  28. Vikas Agarwal & Naveen D. Daniel & Narayan Y. Naik, 2009. "Role of Managerial Incentives and Discretion in Hedge Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 64(5), pages 2221-2256, October.
  29. Harry Mamaysky & Matthew Spiegel & Hong Zhang, 2008. "Estimating the Dynamics of Mutual Fund Alphas and Betas," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 233-264, January.
  30. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 3-53, March.
  31. Busse, Jeffrey A, 1999. "Volatility Timing in Mutual Funds: Evidence from Daily Returns," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1009-41.
  32. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-33, October.
  33. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, Elsevier, vol. 45(3), pages 365-390, September.
  34. Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
  35. Stavros Panageas & Mark M. Westerfield, 2009. "High-Water Marks: High Risk Appetites? Convex Compensation, Long Horizons, and Portfolio Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 64(1), pages 1-36, 02.
  36. Tarun Ramadorai, 2012. "The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium," Journal of Finance, American Finance Association, American Finance Association, vol. 67(2), pages 479-512, 04.
  37. Sheridan Titman & Cristian Tiu, 2011. "Do the Best Hedge Funds Hedge?," Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 123-168.
  38. Chen, Hsiu-Lang & Jegadeesh, Narasimhan & Wermers, Russ, 2000. "The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Fund Managers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 343-368, September.
  39. Wayne Ferson & Tyler R. Henry & Darren J. Kisgen, 2006. "Evaluating Government Bond Fund Performance with Stochastic Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 423-455.
  40. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, American Finance Association, vol. 51(2), pages 425-61, June.
  41. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-41.
  42. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 233-65, June.
  43. Wayne Ferson & Kenneth Khang, 2002. "Conditional Performance Measurement Using Portfolio Weights: Evidence for Pension Funds," NBER Working Papers 8790, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Lukas Mankhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2013. "Information Flows in Dark Markets: Dissecting Customer Currency Trades," BIS Working Papers 405, Bank for International Settlements.
  2. Bussière, Matthieu & Hoerova, Marie & Klaus, Benjamin, 2014. "Commonality in hedge fund returns: driving factors and implications," Working Paper Series 1658, European Central Bank.
  3. Sermin Gungor & Jesus Sierra, 2014. "Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy," Working Papers 14-3, Bank of Canada.
  4. Savona, Roberto, 2014. "Hedge fund systemic risk signals," European Journal of Operational Research, Elsevier, Elsevier, vol. 236(1), pages 282-291.
  5. Bollen, Nicolas P. B., 2013. "Zero-R 2Hedge Funds and Market Neutrality," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(02), pages 519-547, April.
  6. Huang, Huichou & MacDonald, Ronald & Zhao, Yang, 2012. "Global Currency Misalignments, Crash Sensitivity, and Downside Insurance Costs," MPRA Paper 53745, University Library of Munich, Germany, revised 18 Nov 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:68:y:2013:i:2:p:597-635. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.