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Unbundling common style exposures, time variance and style timing of hedge fund beta

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  • Rodrigo Dupleich
  • Daniel Giamouridis

    (Athens University of Economics and Business)

  • Spyros Mesomeris
  • Nima Noorizadeh

Abstract

This article is concerned with the systematic exposures of equity hedge fund managers. In particular, we seek common systematic exposures of equity hedge funds through rigorous model selection techniques. We study their time variance to determine whether the style characteristics of equity hedge funds are stable over time. Most importantly, we explore the informational role of manager decisions in shifting their exposures to certain styles. Our results suggest that equity fund managers are exposed to three dominant style strategies, namely, ‘market’, ‘value’ and ‘momentum’. We also discover that there is a considerable degree of variability in the factor exposures over time for the various dominant sources of systematic risk/return. Finally, we provide evidence that managers vary their exposures to the ‘market’ in time to exploit favourable market moves. However, a similar pattern is not observed for their ‘value’ or ‘momentum’ exposures.

Suggested Citation

  • Rodrigo Dupleich & Daniel Giamouridis & Spyros Mesomeris & Nima Noorizadeh, 2010. "Unbundling common style exposures, time variance and style timing of hedge fund beta," Journal of Asset Management, Palgrave Macmillan, vol. 11(1), pages 19-30, April.
    • Handle: RePEc:pal:assmgt:v:11:y:2010:i:1:d:10.1057_jam.2010.2
    DOI: 10.1057/jam.2010.2
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    References listed on IDEAS

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    1. V Agarwal & N Y Naik, 2000. "Generalised style analysis of hedge funds," Journal of Asset Management, Palgrave Macmillan, vol. 1(1), pages 93-109, July.
    2. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-341.
    3. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
    4. Vrontos, Spyridon D. & Vrontos, Ioannis D. & Giamouridis, Daniel, 2008. "Hedge fund pricing and model uncertainty," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 741-753, May.
    5. 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.
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    Cited by:

    1. Alexander Berglund & Massimo Guidolin & Manuela Pedio, 2020. "Monetary policy after the crisis: A threat to hedge funds' alphas?," Journal of Asset Management, Palgrave Macmillan, vol. 21(3), pages 219-238, May.

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