Understanding Mutual Fund and Hedge Fund Styles Using Return Based Style Analysis
AbstractWe provide an introduction to the use of return based style analysis of Sharpe (1992) in practice. We demonstrate the importance of selecting the right style benchmarks and how the use of inappropriate style benchmarks may lead to wrong conclusions. When style analysis is applied to sector oriented funds such as healthcare, precious metals, energy, technology, etc., the set of benchmarks should include sector or industry indexes. Following Glosten and Jagannathan (1994), Fung and Hsieh (2001), and Agarwal and Naik (2001), we show how to analyze the investment style of hedge fund managers by including the returns on selected option based strategies as style benchmarks. In the examples we consider, return based style analysis provides insights not available through commonly used 'peer' evaluation alone.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9111.
Date of creation: Aug 2002
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Publication status: published as Dor, Arik Ben, Ravi Jagannathan, and Iwan Meier. "Understanding Mutual Fund and Hedge Fund Styles Using Return-Based Style Analysis." Journal of Investment Management 1, 1 (1st Quarter 2003): 94-134.
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Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-08-19 (All new papers)
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