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http://ssrn.com/abstract=1088913
 
 

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A Longer Look at the Asymmetric Dependence between Hedge Funds and the Equity Market


Byoung Uk Kang


The Hong Kong Polytechnic University - School of Accounting and Finance

Francis Haeuck In


Monash University - Department of Accounting and Finance; Financial Research Network (FIRN)

Gunky Kim


Monash University - Faculty of Business and Economics

Tong Suk Kim


Korea Advanced Institute of Science and Technology (KAIST)

September 25, 2009

Journal of Financial and Quantitative Analysis, Vol. 45, No. 3, June 2010, pp. 763-789

Abstract:     
This paper re-examines, at a range of investment horizons, the asymmetric dependence between hedge fund returns and market returns. Given the current availability of hedge fund data, the joint distribution of longer-horizon returns is extracted from the dynamics of monthly returns using the filtered historical simulation; we then apply the method based on copula theory to uncover the dependence structure therein. While the direction of asymmetry remains unchanged, the magnitude of asymmetry is attenuated considerably as the investment horizon increases. Similar horizon effects also occur on the tail dependence. Our findings suggest that nonlinearity in hedge fund exposure to market risk is more short-term in nature, and that hedge funds provide higher benefits of diversification, the longer the horizon.

Number of Pages in PDF File: 43

Keywords: Hedge Funds, Investment Horizon Effect, Nonlinear Dependence, Tail Dependence, Copulas, Filtered Historical Simulation

JEL Classification: G23, G11, C13, C14, C15, C16

Accepted Paper Series


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Date posted: February 1, 2008 ; Last revised: November 3, 2012

Suggested Citation

Kang, Byoung Uk and In, Francis Haeuck and Kim, Gunky and Kim, Tong Suk, A Longer Look at the Asymmetric Dependence between Hedge Funds and the Equity Market (September 25, 2009). Journal of Financial and Quantitative Analysis, Vol. 45, No. 3, June 2010, pp. 763-789. Available at SSRN: http://ssrn.com/abstract=1088913

Contact Information

Byoung Uk Kang (Contact Author)
The Hong Kong Polytechnic University - School of Accounting and Finance ( email )
School of Accounting and Finance
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852-2766-7085 (Phone)
HOME PAGE: http://www.af.polyu.edu.hk/people/detail/36
Francis Haeuck In
Monash University - Department of Accounting and Finance ( email )
Building 11E
Clayton, Victoria 3800
Australia
+61 3 9905 1561 (Phone)
+61 3 9905 5475 (Fax)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Gunky Kim
Monash University - Faculty of Business and Economics ( email )
Monash University
Caulfield East, Victoria 3145
Australia
Tong Suk Kim
Korea Advanced Institute of Science and Technology (KAIST) ( email )
207-43 Cheongryangri2-Dong
Dongdaemun-Gu
Seoul 137-722
Korea
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