Betas, Characteristics and the Cross-Section of Hedge Fund Returns
Mark M. Klebanov
University of Chicago - Graduate School of Business (GSB)
January 7, 2008
Abstract:
I group individual hedge funds on their ex ante betas into portfolios that have reliably different ex post betas. This approach constitutes an alternative to classifying funds by investment style and offers a way to accurately quantify individual funds' exposure to systematic risk. Hedge funds' characteristics predict returns in ways that are unrelated to risk exposures. Abnormal returns associated with characteristics are minimal. On average, betas (and characteristics) do not explain more than 20% (30%) of the cross-sectional variation in hedge fund returns. Under some assumptions about the data, hedge funds' abnormal returns justify their fees.
Number of Pages in PDF File: 80
Keywords: Hedge funds
JEL Classification: G10, G19
working papers series
Suggested Citation
Klebanov, Mark M., Betas, Characteristics and the Cross-Section of Hedge Fund Returns (January 7, 2008). Available at SSRN: http://ssrn.com/abstract=1029644 or http://dx.doi.org/10.2139/ssrn.1029644
