Hedge Fund Replication: Putting the Pieces Together

55 Pages Posted: 18 Jan 2013 Last revised: 19 Mar 2013

Date Written: March 17, 2013

Abstract

In this paper, we aim to bring together into one common framework various advances in factor-based hedge fund replication. Our replication methodology relies on a set of investable dynamic risk factors extracted from futures contract prices and on an automatic variable and model selection procedure. The methodology is then validated by creating out-of-sample replicating portfolios for the monthly returns of more than 7,000 hedge funds ranging from 2006 to 2012 and under the assumption of transaction costs. Our results suggest that hedge fund replication is on average possible and works best for liquid strategies.

Keywords: hedge funds, investments, portfolio management, risk management, regularization, LASSO

JEL Classification: G11, G12, G13, G24

Suggested Citation

Weber, Vincent and Peres, Florian, Hedge Fund Replication: Putting the Pieces Together (March 17, 2013). Available at SSRN: https://ssrn.com/abstract=2202270 or http://dx.doi.org/10.2139/ssrn.2202270

Vincent Weber (Contact Author)

Resonanz Capital ( email )

Frankfurt
Germany

HOME PAGE: http://www.resonanzcapital.com

Florian Peres

Premialab ( email )

Paris
France

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