Hedge Fund Excess Returns Under Time-Varying Beta
AbstractWe construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, illiquidity and tail events. We also adjust for database biases arising from voluntary self-reporting. Using a constant beta model, we find no evidence of excess returns for the average hedge fund manager between 1994 and 2009. Furthermore, we find no evidence of market timing skill. These conclusions are unchanged when we allow for time-varying beta, volatility clustering and leverage effects. In fact, allowing for dynamics in conditional mean and variance equations further erodes evidence of excess returns.
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Bibliographic InfoPaper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 9.
Date of creation: 01 Sep 2010
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hedge funds; time-varying beta; GARCH;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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