Good market timing skills can be an important factor contributing to hedge funds' out-performance. In this paper we use a unique semi-parametric panel data model capable of providing consistent short period estimates of the return correlations with three market factors for a sample of Long/Short...

After taking into account biases induced by infrequent trading and selection, it is unlikely that illiquid asset classes have higher risk-adjusted returns than traditional liquid stock and bond markets. On the other hand, there are significant illiquidity premiums within asset classes. Portfolio...

In recent years both equity and bond markets have been afflicted by high volatility. In order to build up a portfolio on a quantitative basis, several models may be used, such as minimum variance portfolio or equally weighted portfolio. In 2008/09 another way to deal with diversification came...

We present comprehensive evidence in support of giving liquidity equal standing to size, value/growth, and momentum as investment styles, as defined by Sharpe (1992). First, we show that financial market liquidity, as identified by stock turnover, is an economically significant indicator of...

Hedge fund managers are subject to several non-linear incentives: (a) performance fee options (call); (b) equity investor's redemption options (put); (c) prime broker contracts allowing for forced deleverage (put). The interaction of these option-like incentives affects optimal leverage ex-ante,...

We investigate why investors may be willing to participate in active management, notwithstanding that the average manager is likely to generate negative alpha after fees. We model the alpha an investor expects from a dynamic strategy of investing in a portfolio of active investment managers, and...

The paper presents and analyzes a new mutual fund management model that allocates fund's resources with respect to different time preferences of investors. Proposed model enables explicit definition of investment horizons in regular opened-end fund framework that utilizes popular portfolio...

This paper provides a new method to construct a dynamic optimal portfolio for asset management. This method generates a target payoff distribution using the cheapest dynamic trading strategy. As a practical example, the method is applied to hedge fund replication. This dynamic portfolio strategy...

Most of the performance measures proposed in the financial and academic literature are subject to be gamed in an active management framework (Goetzmann et al., 2007). One of the main reasons of this drawback is due to an incomplete characterization by these measures of studied return...

It is well known that investors usually assign part of their funds to asset managers who are given the task of beating a benchmark portfolio. On the other hand, the risk management off ice could impose some restrictions to the asset managers' activity in order to maintain the overall portfolio...