20 years ago, Sharpe (1992) developed the Style Analysis for mutual funds; in this analysis, the weights mutual funds allocate to major asset classes are constrained to sum up to 1. In this paper we develop a Time-Varying Style Analysis (TVSA) in which the weights must sum up to 1 but are...

In this paper, we show the interest of the time-varying coefficient model in hedge fund performance assessment and selection. We argue that the alpha of hedge funds is dynamic and that the time-varying alpha captures this dynamic behavior. Therefore, forming portfolios based on their...

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,...

Utilizing several models and regression analytics I compare factor attribution, strategies, and active management fees for 11,394 U.S. equity mutual funds and a matched sample of hedge funds from 1994 to 2010. There is modest evidence to support alpha delivery by mutual and hedge fund managers...

Despite the rapid rise of the number of liquid alternative mutual funds (LAMFs) available to retail investors in recent years, few studies have compared how their return and risk characteristics differ from their hedge fund counterparts across their entire history. Being among the first...

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...

The subprime crisis was quite damaging for hedge funds. Using the local projection method (Jordà 2004, 2005, 2009), we forecast the dynamic responses of the betas of hedge fund strategies to macroeconomic and financial shocks-especially volatility and illiquidity shocks-over the subprime crisis...

This article addresses the problem of portfolio construction in the context of efficient hedge fund investments replication. We propose a modification to the standard à la Sharpe “style analysis” by introducing a constraint on the asset weights 1-norm and 2-norm. This constraint regularizes...

This chapter provides a comprehensive explanation of hedge fund replication. This chapter first reviews the characteristics of hedge fund returns. Then, the emergence of hedge fund replication products is discussed. Hedge fund replication methods are classified into three categories: rule-based,...

Portfolio optimisation for a Fund of Hedge Funds (“FoHF”) has to address the asymmetric, non-Gaussian nature of the underlying returns distributions. Furthermore, the objective functions and constraints are not necessarily convex or even smooth. Therefore traditional portfolio optimisation...