This paper studies the joint impact of smoothing and fat tails on the risk-return properties of hedge fund strategies. First, we adjust risk and performance measures for illiquidity and the non-Gaussian distribution of hedge funds returns. We use two risk metrics: the Modified Value-at-Risk and...

This paper revisits the traditional return-based style analysis (RBSA) in presence of time-varying exposures and errors-in-variables (EIV). We first apply a selection algorithm using the Kalman filter to identify the more appropriate benchmarks for the analysed fund return. Then, we compute...