Macroeconomic shocks, forward-looking dynamics, and the behavior of hedge funds

Racicot, François-Éric; Théoret, Raymond

doi:10.1016/j.jbankfin.2015.10.004

Cited by 50 publications

(23 citation statements)

References 60 publications

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“…By diversifying across forecasts, the combination strategy is more sufficient when return forecasts are not sufficiently accurate, thus avoiding a poor fund selection. Racicot and Theoret (2016), using strategy indices from the Greenwich Alternative Investment database from 1995 to 2012, examined the behaviour of the cross-sectional dispersions of hedge funds' returns, market betas and alphas during times of macroeconomic uncertainty. In their model they used the three Fama and French (1993) factors and the Fung and Hsieh (1997, 2004) lookback factors.…”

Section: Dealing With Systematic Riskmentioning

confidence: 99%

“…There are changes to portfolio allocations and to exposures in different asset classes, however changes in portfolio allocations are the main drivers of the funds' risk exposure variation. Also, hedge funds update their positions at a higher frequency than mutual funds Racicot and Theoret (2016) Greenwich Alternative Investment, 1995Investment, -2012 Up-Bottom/Kalman filter, timeseries and cross-sectional regressions…”

Section: Studymentioning

confidence: 99%

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Recent advances in explaining hedge fund returns: Implicit factors and exposures

Stafylas

Anderson

Uddin

2017

Global Finance Journal

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We survey articles covering how hedge funds returns are explained, using largely nonlinear multifactor models that examine the non-linear pay-offs and exposures of hedge funds. We provide an integrated view of the implicit factor and statistical factor models that are largely able to explain the hedge fund return-generating process. We present their evolution through time by discussing pioneering studies that made a significant contribution to knowledge, and also recent innovative studies that examine hedge funds exposures using advanced econometric methods. This is the first review that analyzes very recent studies that explain a large part of hedge fund variation. We conclude by presenting some gaps for future research. Recent Advances in Explaining Hedge Fund Returns: Implicit Factors and Exposures AbstractWe survey articles covering how hedge funds returns are explained, using largely nonlinear multifactor models that examine the non-linear pay-offs and exposures of hedge funds. We provide an integrated view of the implicit factor and statistical factor models that are largely able to explain the hedge fund return-generating process. We present their evolution through time by discussing pioneering studies that made a significant contribution to knowledge, and also recent innovative studies that examine hedge funds exposures using advanced econometric methods. This is the first review that analyzes very recent studies that explain a large part of hedge fund variation. We conclude by presenting some gaps for future research.Keywords: hedge fund performance; implicit factors; statistical factors; linear and non-linear multi-factor models; alpha and beta returns 1

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Section: Dealing With Systematic Riskmentioning

confidence: 99%

Section: Studymentioning

confidence: 99%

Recent advances in explaining hedge fund returns: Implicit factors and exposures

Stafylas

Anderson

Uddin

2017

Global Finance Journal

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“…[27] and [28] have also used the HFR database. The HFR database is not the only one that can be used: [2,5,29,30,31,32], for example, used data from International Securities and Derivatives Markets (CISDM) and [15] used data of Greenwich Alternative Investment. Thus, our categorization could be compared with [27] and [28].…”

Section: Data Selectionmentioning

confidence: 99%

Relationship of Commodity and Equity Indices on Hedge Fund Performance

Gerhard¹,

Beinhauer²

2017

JFE

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The golden times of the hedge fund industry ended with the beginning of the financial crisis of 2007/08.Since then hedge funds have underperformed against the S&P 500. This study shows that the Dodd Frank Act regulation was responsible for a completely changing environment for hedge funds. We have developed a model where equity indices and the CRB index are explanatory variables for hedge fund performance. Concerning methodology, data of two different phases are considered, namely the time period from 1990 to July 2010 (implementation of Dodd Frank Act) and the time period from August 2010 to April 2015. Surveys for the second time period showed that regulation was a major issue for the hedge fund industry. Especially small hedge funds find it problematic to get leverage from prime brokers and capital from investors. Another trend shown with the surveys is a general increase in the long only strategy (especially of small hedge funds). Our hypothesis assumes that the explanatory character of the MSCI Emerging Market (MSCI EM), the S&P 500, and the CRB index for hedge fund performance is increasing in the second period. The hypothesis is found to be correct.

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“…The negative correlation between stock returns and implied volatility captures the leverage effect rst discussed by Black (1976). Racicot and Théoret (2016) found that the VIX embeds many properties of other macroeconomic and nancial uncertainty measures such as the growth of industrial production, the growth of consumer credit, longterm interest rates, term spreads etc. Note: Only one observation per month is shown.…”

Section: The Vix and Sandp 500mentioning

confidence: 99%