Abstract

http://ssrn.com/abstract=1910719
 
 

References (47)



 


 



The Cost of Capital for Alternative Investments


Jakub W. Jurek


University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Erik Stafford


Harvard Business School - Finance Unit

March 1, 2015

Harvard Business School Working Paper No. 1910719

Abstract:     
Traditional risk factor models indicate that hedge funds capture pre-fee alphas of 6% to 10% per annum over the period from 1996 to 2012. At the same time, the hedge fund return series is not reliably distinguishable from the returns of mechanical S&P 500 put-writing strategies. We show that the high excess returns to hedge funds and put-writing are consistent with an equilibrium in which a small subset of investors specialize in bearing downside market risks. Required rates of return in such an equilibrium can dramatically exceed those suggested by traditional models, affecting inference about the attractiveness of these investments.

Number of Pages in PDF File: 47

Keywords: hedge funds, downside risk, replication, performance evaluation, risk management, endowment model

JEL Classification: G12, G23, G31


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Date posted: January 14, 2013 ; Last revised: September 3, 2015

Suggested Citation

Jurek, Jakub W. and Stafford, Erik, The Cost of Capital for Alternative Investments (March 1, 2015). Harvard Business School Working Paper No. 1910719. Available at SSRN: http://ssrn.com/abstract=1910719 or http://dx.doi.org/10.2139/ssrn.1910719

Contact Information

Jakub W. Jurek (Contact Author)
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1588 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Erik Stafford
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-8064 (Phone)
617-496-7357 (Fax)
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