Betas, Characteristics and the Cross-Section of Hedge Fund Returns
Mark M. Klebanov
University of Chicago - Graduate School of Business (GSB)
January 7, 2008
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, G19working papers series
Date posted: November 13, 2007 ; Last revised: January 9, 2008
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.328 seconds