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Are Smart Beta strategies suitable for hedge fund portfolios?

Author

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  • Hitaj, Asmerilda
  • Zambruno, Giovanni

Abstract

In the equity context different Smart Beta strategies (such as the equally weighted, global minimum variance, equal risk contribution and maximum diversified ratio) have been proposed as alternatives to the cap-weighted index. These new approaches have attracted the attention of equity managers as different empirical analyses demonstrate the superiority of these strategies with respect to cap-weighted and to strategies that consider only mean and variance. In this paper we focus our attention to hedge fund index portfolios and analyze if the results reported in the equity framework are still valid. We consider hedge fund index and equity portfolios, the approaches used for portfolio selection are the four ‘Smart Beta’ strategies, mean–variance and mean–variance–skewness. In the two latter approaches the Taylor approximation of a CARA expected utility function and the Polynomial Goal Programing (PGP) have been used. The obtained portfolios are analyzed in the in-sample as well as in the out-of-sample perspectives.

Suggested Citation

  • Hitaj, Asmerilda & Zambruno, Giovanni, 2016. "Are Smart Beta strategies suitable for hedge fund portfolios?," Review of Financial Economics, Elsevier, vol. 29(C), pages 37-51.
  • Handle: RePEc:eee:revfin:v:29:y:2016:i:c:p:37-51
    DOI: 10.1016/j.rfe.2016.03.001
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    References listed on IDEAS

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    1. Gustavo Athayde & Renato G. Flores, 2002. "The Portfolio Frontier with Higher Moments: The Undiscovered Country," Computing in Economics and Finance 2002 209, Society for Computational Economics.
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    Cited by:

    1. Gian Paolo Clemente & Rosanna Grassi & Asmerilda Hitaj, 2018. "Asset allocation: new evidence through network approaches," Papers 1810.09825, arXiv.org.
    2. Gian Paolo Clemente & Rosanna Grassi & Asmerilda Hitaj, 2019. "Smart network based portfolios," Papers 1907.01274, arXiv.org.
    3. repec:spr:comgts:v:16:y:2019:i:1:d:10.1007_s10287-018-0333-x is not listed on IDEAS
    4. repec:spr:comgts:v:16:y:2019:i:1:d:10.1007_s10287-018-0306-0 is not listed on IDEAS

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