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Regime switching models of hedge fund returns

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Author Info
Szabolcs Blazsek () (Department of Business, Universidad de Navarra)
Anna Downarowicz () (Department of Finance, Instituto de Empresa Business School)

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Abstract

We estimate and compare the forecasting performance of several dynamic models of returns of different hedge fund strategies. The conditional mean of return is an ARMA process while its conditional volatility is modeled according to the GARCH specification. In order to take into account the high level of risk of these strategies, we also consider a Markov switching structure of the parameters in both equations to capture jumps. Finally, the one-step-ahead out-of-sample forecast performance of different models is compared.

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Publisher Info
Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 12/08.

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Length: 52 pages
Date of creation: 28 Nov 2008
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Handle: RePEc:una:unccee:wp1208

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Related research
Keywords: Markov switching ARMA-GARCH; forecasting performance;

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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