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


  • 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.

Suggested Citation

  • Monica Billio & Lorenzon Frattarolo & Lauriana Pelizzon, 2014. "A Time-Varying Performance Evaluation of Hedge Fund Strategies through Aggregation," Bankers, Markets & Investors, ESKA Publishing, issue 129, pages 40-58, March-Apr.
  • Handle: RePEc:rbq:journl:i:129:p:40-58

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    Cited by:

    1. Fan Yang & Tomas Havranek & Zuzana Irsova & Jiri Novak, 2022. "Hedge Fund Performance: A Quantitative Survey," Working Papers IES 2022/15, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2022.

    More about this item


    Extra performances; Hedge funds; Markov switching models; Financial crises;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions


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