Send in the Clones? Hedge Fund Replication Using Futures Contracts
Nicolas P. B. Bollen
Vanderbilt University - Finance
Gregg S. Fisher
July 3, 2012
Vanderbilt Owen Graduate School of Management Research Paper No. 2102593
Replication products strive to offer investors some of the benefits of hedge funds while avoiding their high fees, illiquidity, and opacity. We test whether a replication algorithm can deliver the diversification and high Sharpe ratio that investors seek. Our procedure constructs monthly clone returns out-of-sample using fully collateralized futures positions held for one-month, with position sizes determined using rolling window regressions. Clone returns have high correlation with their hedge fund targets, indicating replication is possible. Clones also have high correlation with a buy-and-hold investment in stocks, however, and neither the targets nor their clones demonstrate successful time variation in factor loadings.
Number of Pages in PDF File: 35
Keywords: Hedge fund, replication, market timing
JEL Classification: G23working papers series
Date posted: July 10, 2012 ; Last revised: March 22, 2013
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.687 seconds