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Hedge Fund Managers: Luck and Dynamic Assessment

Author

Listed:
  • Gilles Criton
  • Olivier Scaillet

    (University of Geneva Swiss Finance Institute)

Abstract

This paper outlines a new technique that considers the dynamics of hedge funds and controls for the proportion of true alphas. This methodology enabled us to analyze alphas and betas of hedge fund managers differently than the approaches commonly applied. Through this work, we proved that alphas generated by hedge fund managers’ dynamic strategies are not consistent within strategy and across different market conditions. Moreover, our work analyzed market exposures during two periods of economic crisis, illustrating heterogeneity within each strategy. We revealed that, regardless of the strategy, exposures are concentrated on the credit spread and bond risk factors.

Suggested Citation

  • Gilles Criton & Olivier Scaillet, 2014. "Hedge Fund Managers: Luck and Dynamic Assessment," Bankers, Markets & Investors, ESKA Publishing, issue 129, pages 28-38, March-Apr.
    • Handle: RePEc:rbq:journl:i:129:p:28-38
    as

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    Citations

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    Cited by:

    1. Philippe Bernard & Najat El Mekkaoui De Freitas & Bertrand B. Maillet, 2022. "A financial fraud detection indicator for investors: an IDeA," Annals of Operations Research, Springer, vol. 313(2), pages 809-832, June.
    2. Moraes, Fernando & Cavalcante-Filho, Elias & De-Losso, Rodrigo, 2021. "Unskilled fund managers: Replicating active fund performance with few ETFs," International Review of Financial Analysis, Elsevier, vol. 78(C).
    3. Yan, Cheng & Cheng, Tingting, 2019. "In search of the optimal number of fund subgroups," Journal of Empirical Finance, Elsevier, vol. 50(C), pages 78-92.

    More about this item

    Keywords

    Hedge Fund Performance; time-varying coefficient; Nonparametric estimation; Kernel methods; Multiple structural breaks; Multiple hypothesis testing; False discovery rate;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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