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On the High-Frequency Dynamics of Hedge Fund Risk Exposures

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  • Patton, Andrew J
  • Ramadorai, Tarun

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8479.

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Date of creation: Jul 2011
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Handle: RePEc:cpr:ceprdp:8479

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Keywords: beta; hedge funds; mutual funds; performance evaluation; time-varying risk; window-dressing;

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References

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Citations

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Cited by:
  1. Bussière, Matthieu & Hoerova, Marie & Klaus, Benjamin, 2014. "Commonality in hedge fund returns: driving factors and implications," Working Paper Series 1658, European Central Bank.
  2. Savona, Roberto, 2014. "Hedge fund systemic risk signals," European Journal of Operational Research, Elsevier, vol. 236(1), pages 282-291.
  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. 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.
  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.

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