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Modeling the Risk Dynamics of Hedge Funds

Author

Listed:
  • Johan Knif
  • Dimitrios Koutmos
  • Gregory Koutmos

Abstract

This paper investigates the risk dynamics of hedge fund index returns and the market timing abilities of hedge fund managers. The empirical evidence shows that the systematic risk of all hedge fund index returns are highly variable over time, implying that reported alpha returns as well as standard risk management metrics are unreliable. In almost all cases volatility is asymmetric and the range of estimated betas is rather large. The degree of persistence is also very high. The results show that both systematic and unsystematic risk of all hedge fund styles is time varying. Furthermore, there is no evidence of successful market timing. JEL classification numbers: G1, G11, G12, C5Keywords: Hedge Funs, Volatility Dynamics, Conditional Heteroscedasticity

Suggested Citation

  • Johan Knif & Dimitrios Koutmos & Gregory Koutmos, 2019. "Modeling the Risk Dynamics of Hedge Funds," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 8(1), pages 1-3.
    • Handle: RePEc:spt:fininv:v:8:y:2019:i:1:f:8_1_3
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    References listed on IDEAS

    as
    1. Harry. M Kat & Sa Lu, 2002. "An Excursion into the Statistical Properties of Hedge Funds," ICMA Centre Discussion Papers in Finance icma-dp2002-12, Henley Business School, University of Reading.
    2. Chen, Yong & Liang, Bing, 2007. "Do Market Timing Hedge Funds Time the Market?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 827-856, December.
    3. Koutmos, Gregory & Booth, G Geoffrey, 1995. "Asymmetric volatility transmission in international stock markets," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 747-762, December.
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    More about this item

    Keywords

    hedge funs; volatility dynamics; conditional heteroscedasticity;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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