Abstract

http://ssrn.com/abstract=1553911
 
 

References (68)



 
 

Citations (9)



 


 



Do Hedge Funds’ Exposures to Risk Factors Predict Their Future Returns?


Turan G. Bali


Georgetown University - Robert Emmett McDonough School of Business

Stephen J. Brown


New York University - Stern School of Business

Mustafa O. Caglayan


Ozyegin University

October 26, 2010


Abstract:     
This paper investigates hedge funds’ exposures to various financial and macroeconomic risk factors through alternative measures of factor betas and examines their performance in predicting the cross-sectional variation in hedge fund returns. Both parametric and nonparametric tests indicate a significantly positive (negative) link between default premium beta (inflation beta) and future hedge fund returns. The results are robust across different subsample periods and states of the economy, and after controlling for market, size, book-to-market, and momentum factors as well as the trend-following factors in stocks, short-term interest rates, currencies, bonds, and commodities. The paper also provides macro and micro level explanations of our findings.

Number of Pages in PDF File: 66

Keywords: Hedge Funds, Return Predictability, Risk Factors

JEL Classification: G10, G11, C13

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Date posted: February 18, 2010 ; Last revised: February 27, 2012

Suggested Citation

Bali, Turan G. and Brown, Stephen J. and Caglayan, Mustafa O., Do Hedge Funds’ Exposures to Risk Factors Predict Their Future Returns? (October 26, 2010). Available at SSRN: http://ssrn.com/abstract=1553911 or http://dx.doi.org/10.2139/ssrn.1553911

Contact Information

Turan G. Bali (Contact Author)
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)
HOME PAGE: http://faculty.msb.edu/tgb27/index.html

Stephen J. Brown
New York University - Stern School of Business ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0306 (Phone)
212-995-4233 (Fax)
Mustafa O. Caglayan
Ozyegin University ( email )
Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey
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