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A Time-Varying Performance Evaluation of Hedge Fund Strategies through Aggregation

Listed author(s):
  • Monica Billio

    (Ca' Foscari University of Venice)

  • Lorenzon Frattarolo

    (Ca' Foscari University of Venice, University Paris-1 Panthéon-Sorbonne)

  • Lauriana Pelizzon

    (Ca' Foscari University of Venice, Goethe-University Frankfurt Research Affiliate MIT Sloan, Laboratory for Financial Engineering)

We evaluate the time varying behavior of the extra performance of single hedge funds using a Markov Switching model. We calculate the hedge fund performance adjusted by the Fung and Hsieh 7 factors and use this measure as the dependent variable of a Markov Switching model. With this methodology we obtain individual time varying alphas that are then aggregated to compute time varying alphas for the whole industry and single hedge funds strategies. Our analysis shows that profitability changes dramatically trough time, across categories and is related to the level of competition of the hedge fund market.

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File URL: http://www.revue-banque.fr/article/time-varying-performance-evaluation-hedge-fund-str
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Article provided by Groupe Revue Banque in its journal Bankers, Markets & Investors.

Volume (Year): (2014)
Issue (Month): 129 (March-April)
Pages: 40-58

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Handle: RePEc:rbq:journl:i:129:p:40-58
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