Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns
AbstractSeveral studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies. The authors provide a statistical methodology to test for such non-linear features with the returns on any benchmark portfolio. They estimate the portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the contingent claim features, and test whether the identified non-linear features have a positive value. The authors find that not all categories of funds exhibit significant non-linearities, and that only a few strategies as a group provide significant value to investors. Individual funds may still provide value in an otherwise poorly performing category.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 06-31.
Length: 71 pages
Date of creation: 2006
Date of revision:
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Econometric and statistical methods; Financial institutions;
Other versions of this item:
- Antonio Diez De Los Rios & René Garcia, 2011. "Assessing and valuing the nonlinear structure of hedge fund returns," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 193-212, March.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-16 (All new papers)
- NEP-ETS-2006-09-16 (Econometric Time Series)
- NEP-FMK-2006-09-16 (Financial Markets)
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