Passive Hedge Fund Replication – Beyond the Linear Case |
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Authors: | Noël Amenc Lionel Martellini Jean‐Christophe Meyfredi Volker Ziemann |
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Institution: | 1. Edhec Graduate School of Business and Edhec Risk and Asset Management Research Center, 400 Promenade des Anglais, BP 3116, 06202 Nice Cedex 3, FranceE‐mail: lionel.martellini@edhec.edu, noel.amenc@edhec.edu, jcm@edhec.edu;2. Edhec Risk and Asset Management Research Center, 400 Promenade des Anglais, BP 3116, 06202 Nice Cedex 3, FranceE‐mail: volker.ziemann@edhec.edu |
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Abstract: | In this paper we extend Hasanhodzic and Lo (2007) by assessing the out‐of‐sample performance of various non‐linear and conditional hedge fund replication models. We find that going beyond the linear case does not necessarily enhance the replication power. On the other hand, we find that selecting factors on the basis on an economic analysis allows for a substantial improvement in out‐of‐sample replication quality, whatever the underlying form of the factor model. Overall, we confirm the findings in Hasanhodzic and Lo (2007) that the performance of the replicating strategies is systematically inferior to that of the actual hedge funds. |
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Keywords: | hedge funds replication conditional factor model G10 |
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