In this paper we analyze the contribution of hedge funds in optimal asset allocations for different investor clienteles. The preferences of specific institutional investors are captured by implementing a Bayesian asset allocation framework that incorporates heterogeneous expectations regarding...

Recently, a body of academic literature has focused on the area of stable distributions and their application potential for improving our understanding of the risk of hedge funds. At the same time, research has sprung up that applies standard Bayesian methods to hedge fund evaluation. Little or...

This paper investigates the alpha generation of the hedge fund industry based on a recent sample compiled from the Lipper/TASS database covering the time period from January 1994 to September 2008. We find a positive average hedge fund alpha in the cross-section for the majority of strategies...

We define a dynamic and self-adjusting mixture of Gaussian Graphical Models to cluster financial returns, and provide a new method for extraction of nonparametric estimates of dynamic alphas (excess return) and betas (to a choice set of explanatory factors) in a multivariate setting. This...

We give an explicit algorithm and source code for combining alpha streams via bounded regression. In practical applications, typically, there is insufficient history to compute a sample covariance matrix (SCM) for a large number of alphas. To compute alpha allocation weights, one then resorts to...

Do more active hedge fund managing strategies generate higher returns than the less active ones? We develop a novel approach to measuring activeness for hedge funds by estimating the dynamics of risk exposure of a large sample of live and dead equity long-short funds. We find that higher...

This paper examines the funding liquidity faced by hedge funds and the resulting implication for stocks' excess return co-movement. We find that hedge fund ownership tends to induce a higher stocks' return co-movement with each other, compared to other institutional investors like mutual funds...

Do more active hedge fund managers generate higher returns than their less active peers? We attempt to answer this question. Using Kalman Filter techniques, we estimate the risk exposure dynamics of a large sample of live and dead equity long-short hedge funds. These estimates are then used to...

This article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios. Similarly to Avramov, Kosowski, Naik, and Teo, we observe that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills...