Testing non-linear dependence in the hedge fund industry
AbstractThis paper proposes a parsimonious approach to test non-linear dependence on the conditional mean and variance of hedge funds with respect to several market factors. My approach introduces non-linear dependence by means of empirically relevant polynomial functions of the factors. For comparison purposes, I also consider multifactor extensions of tests based on piecewise linear alternatives. I apply these tests to a database of monthly returns on 1,071 hedge funds. I find that non-linear dependence on the mean is highly sensitive to the factors that I consider. However, I obtain a much stronger evidence of nonlinear dependence on the conditional variance.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1007.
Length: 43 pages
Date of creation: Mar 2010
Date of revision:
Generalised Hyperbolic Distribution; Correlation; Asymmetry; Multifactor Models;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-04 (All new papers)
- NEP-ECM-2010-04-04 (Econometrics)
- NEP-ETS-2010-04-04 (Econometric Time Series)
- NEP-FMK-2010-04-04 (Financial Markets)
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.:
- Giovanni Barone Adesi & Patrick Gagliardini & Giovanni Urga, 2004. "Testing Asset Pricing Models With Coskewness," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 474-485, October.
- 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.
- Antonio Diez de los Rios & René Garcia, 2006. "Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns," Working Papers 06-31, Bank of Canada.
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