Abstract:Even though there is little evidence of predictability in stock specific risk, most equity m arket neutral managers still rely on stock picking as the preferred way to generate abnormal returns. In this paper, we document the benefits of a new form of market-neutral portfolio strategy that aims at delivering absolute return over the full business cycle through systematic equity style timing decisions. Using a robust multi-factor recursive modeling approach, we find strong evidence of predictability in value and size style differentials. We use these econometric forecasts to generate systematic style timing allocation decisions. These portfolio decisions can be implemented using Exchange Traded Funds on US style indexes.Edhec is one of the top five business schools in France owing to the high quality of its academic staff (90 permanent lecturers from France and abroad) and its privileged relationship with professionals that the school has been developing since its establishment in 1906. Edhec Business School has decided to draw on its extensive knowledge of the professional environment and has therefore concentrated its research on themes that satisfy the needs of professionals. Edhec implements an active research policy in the field of finance. Its "Risk and Asset Management research centre" carries out numerous research programs in the areas of asset allocation and risk management in both the traditional and alternative investment universes.
Purpose -The development of alternative investment has not yet been accompanied by genuine consideration of the specific characteristics of the risks and returns of hedge funds with regard to the provision of information to investors. To fill the gap, in 2004 EDHEC launched an international consultation process, seeking to implement a new framework for funds of hedge funds reporting. Design/methodology/approach -The consultation process was based on a series of recommendations proposed by EDHEC with regard to the academic state-of-the-art on risk measurement in the alternative universe. The findings of the survey, which brought together the opinions of 98 institutional investors and fund managers, allow a consensus to be established on the information required for the implementation of a relevant reporting method in the field of alternative investment. Findings -Interestingly, despite somewhat conflicting goals, investors and fund managers, except for slight discrepancies, globally agree on the definition of relevant information, and as a result on the content of the reports of tomorrow. Originality/value -A very large majority of hedge fund managers are satisfied with a reporting method based on a mean-variance structure, which is totally inappropriate for the risk and return profiles of alternative investment. To address this issue, the paper presents a series of indicators relying on a basic return-based analysis that allow a true and fair picture of the risk and return characteristics of alternative investment to be drawn. This paper therefore offers a pragmatic but robust answer, for both investors and fund managers, to the fund of hedge funds reporting quandary.
Designing hedge fund offerings that better fit investor needs. NOËL AMENC, PHILIPPE MALAISE, and LIONEL MARTELLINI Portfolio Management 2006.32:90-98. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 07/12/15. For personal use only.
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