Managed Futures and Hedge Funds: A Match Made in Heaven
Harry M. Kat
City University London - Sir John Cass Business School
November 1, 2002
Cass Business School Research Paper
In this paper we study the possible role of managed futures in portfolios of stocks, bonds and hedge funds. We find that allocating to managed futures allow investors to achieve a very substantial degree of overall risk reduction at limited costs. Apart from their lower expected return, managed futures appear to be more effective diversifiers than hedge funds. Adding managed futures to a portfolio of stocks and bonds will reduce that portfolio's standard deviation more and quicker than hedge funds will, and without the undesirable side-effects on skewness and kurtosis. Overall portfolio standard deviation can be reduced further by combining both hedge funds and managed futures with stocks and bonds. As long as at least 45-50% of the alternatives allocation is allocated to managed futures, this again will not have any negative side-effects on skewness and kurtosis.
Number of Pages in PDF File: 24
JEL Classification: G00
Date posted: November 21, 2002
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.344 seconds