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A Multi-Criteria Financial and Energy Portfolio Analysis of Hedge Fund Strategies

Author

Listed:
  • David E. Allen

    (School of Mathematics and Statistics, University of Sydney, Australia, Department of Finance, Asia University, Taiwan, and School of Business and Law, Edith Cowan University, Western Australia.)

  • Michael McAleer

    ( Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)

  • Abhay K. Singh

    (Department of Applied Finance, Macquarie University, Australia.)

Abstract

The paper is concerned with a multi-criteria portfolio analysis of hedge fund strategies that are concerned with financial commodities, including the possibility of energy spot, futures and exchange traded funds (ETF). It features a tri-criteria analysis of the Eurekahedge fund data strategy index data. We use nine Eurekahedge equally weighted main strategy indices for the portfolio analysis. The tri-criteria analysis features three objectives: return, risk and dispersion of risk objectives in a Multi-Criteria Optimisation (MCO) portfolio analysis. We vary the MCO return and risk targets, and contrast the results with four more standard portfolio optimisation criteria, namely tangency portfolio (MSR), most diversified portfolio (MDP), global minimum variance portfolio (GMW), and portfolios based on minimising expected shortfall (ERC). Backtests of the chosen portfolios for this hedge fund data set indicate that the use of MCO is accompanied by uncertainty about the a priori choice of optimal parameter settings for the decision criteria. The empirical results do not appear to outperform more standard bi-criteria portfolio analyses in the backtests undertaken on the hedge fund index data.

Suggested Citation

  • David E. Allen & Michael McAleer & Abhay K. Singh, 2018. "A Multi-Criteria Financial and Energy Portfolio Analysis of Hedge Fund Strategies," Documentos de Trabajo del ICAE 2018-18, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    • Handle: RePEc:ucm:doicae:1818
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    MCO; Portfolio Analysis; Hedge Fund Strategies; Multi-Criteria Optimisation; Genetic Algorithms; Spot prices; Futures pricees; Exchange Traded Funds (ETF).;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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