Hedge fund pricing and model uncertainty |
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Authors: | Spyridon D Vrontos Ioannis D Vrontos Daniel Giamouridis |
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Institution: | 1. Department of Statistics and Actuarial-Financial Mathematics, University of Aegean, Samos, Greece;2. Department of Statistics, Athens University of Economics and Business, Athens, Greece;3. Department of Accounting and Finance, Athens University of Economics and Business, Athens, Greece;4. Faculty of Finance, Sir John Cass Business School, City University, London, UK |
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Abstract: | This article uses Bayesian model averaging to study model uncertainty in hedge fund pricing. We show how to incorporate heteroscedasticity, thus, we develop a framework that jointly accounts for model uncertainty and heteroscedasticity. Relevant risk factors are identified and compared with those selected through standard model selection techniques. The analysis reveals that a model selection strategy that accounts for model uncertainty in hedge fund pricing regressions can be superior in estimation/inference. We explore potential impacts of our approach by analysing individual funds and show that they can be economically important. |
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Keywords: | G11 G12 C11 |
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