Cumulant instrument estimators for hedge fund return models with errors in variables

Racicot, François-Éric; Théoret, Raymond

doi:10.1080/00036846.2013.868591

Cited by 23 publications

(5 citation statements)

References 50 publications

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“…To compute the robust instruments used in the GMM estimator, we follow closely our previous works (Racicot and Théoret 2014;Racicot 2015).…”

Section: Robust Instrumentsmentioning

confidence: 99%

“…Two features of this approach are that it (i) is a parsimonious because it does not require much computational power and (ii) it can be viewed as minimizing a distance (d) measure. This GMM approach is referred to as GMM d in our previous work (Racicot and Théoret 2014;Racicot and Rentz, forthcoming). The GMM d instruments are obtained using a weighted average of the Durbin's and Pal's estimators (see Dagenais and Dagenais, 1994).…”

Section: Introductionmentioning

confidence: 99%

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Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Racicot

Rentz

2015

Applied Economics Letters

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Fama and French (FF, 2015) propose a five-factor asset pricing model that captures size, value, profitability and investment patterns. The primary purpose here is to further investigate this new model using an improved GMM-based robust instrumental variables technique. A further purpose is to explore the relationship among the FF factors and the Pástor-Stambaugh (PS, 2003) liquidity factor. We conclude that except for the market factor, all of the factors including liquidity are not significant at even the 5% level using our GMM approach for almost all of the FF 12 sectors.

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“…To compute the robust instruments used in the GMM estimator, we follow closely our previous works (Racicot and Théoret 2014;Racicot 2015).…”

Section: Robust Instrumentsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Racicot

Rentz

2015

Applied Economics Letters

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“…In earlier works, the authors Racicot, F.E. and Théoret, R. [ 24 , 25 , 26 ] estimate volatility, uncertainty and risk. The authors analyze the hedge fund returns and describe cyclical indicators.…”

Section: Literaturementioning

confidence: 99%

Developing a crisis model based on higher-order moments

Ivanyuk

2022

Heliyon

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In this paper, the goal is to create a model for detecting a crisis situation using the example of financial time series. An analysis of fixed and cumulative central and raw moments has been carried out. When conducting the analysis by higher-order moments, it has been shown that the moments record the presence of deviations and extreme values in the distribution of the series. Based on the higher-order moments, a crisis indicator has been proposed.

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“…Next, we analyse the time series of megatrend portfolios' returns resulting from CWLS by employing OLS with Newey-West standard errors. We also apply a GMM estimator that relies on a new and innovative set of distance instrumental variables (GMM-IV d ) to account for the well-known phenomenon that the FF factors usually incorporate different forms of endogeneity [31][32][33][34][35].…”

Section: Plos Onementioning

confidence: 99%

Performance measurement of ESG-themed megatrend investments in global equity markets using pure factor portfolios methodology

Naffa

Fain

2020

PLoS ONE

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ESG factors are becoming mainstream in portfolio investment strategies, attracting increasing fund inflows from investors who are aligning their investment values to Sustainable Development Goals (SDG) declared by the United Nations Principles for Responsible Investments. Do investors sacrifice return for pursuing ESG-aligned megatrend goals? The study analyses the risk-adjusted financial performance of ESG-themed megatrend investment strategies in global equity markets. The analysis covers nine themes for the period 2015–2019: environmental megatrends covering energy efficiency, food security, and water scarcity; social megatrends covering ageing, millennials, and urbanisation; governance megatrends covered by cybersecurity, disruptive technologies, and robotics. We construct megatrend factor portfolios based on signalling theory and formulate a novel measure for stock megatrend exposure (MTE), based on the relative fund flows into the corresponding thematic ETFs. We apply pure factor portfolios methodology based on constrained WLS cross-sectional regressions to calculate Fama-French factor returns. Time-series regression rests on the generalised method of moments estimator (GMM) that uses robust distance instruments. Our findings show that each environmental megatrend, as well as the disruptive technologies megatrend, yielded positive and significant alphas relative to the passive strategy, although this outperformance becomes statistically insignificant in the Fama-French 5-factor model context. The important result is that most of the megatrend factor portfolios yielded significant non-negative alphas; which supports our assumption that megatrend investing strategy promotes SDGs while not sacrificing returns, even when accounting for transaction costs up to 50bps/annum. Higher transaction costs, as is the case for some of these ETFs with expense ratios reaching 80-100bps, may be an indication of two things: ESG-themed megatrend investors were willing to sacrifice ca. 30-50bps of annual return to remain aligned with sustainability targets, or that expense ratio may well decline in the future.

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Cumulant instrument estimators for hedge fund return models with errors in variables

Cited by 23 publications

References 50 publications

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Developing a crisis model based on higher-order moments

Performance measurement of ESG-themed megatrend investments in global equity markets using pure factor portfolios methodology

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