Abstract

http://ssrn.com/abstract=855424
 
 

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Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication


Harry M. Kat



Helder P. Palaro


Independent

November 23, 2005

Alternative Investment Research Centre Working Paper No. 27
Cass Business School Research Paper

Abstract:     
In this paper we develop and demonstrate the workings of a copula-based technique that allows the derivation of dynamic trading strategies, which generate returns with statistical properties similar to hedge funds. We show that this technique is not only capable of replicating fund of funds returns, but is equally well suited for the replication of individual hedge fund returns. Since replication is accomplished by trading futures on traditional assets only, it avoids the usual drawbacks surrounding hedge fund investments, including the need for extensive due diligence, liquidity, capacity, transparency and style drift problems, as well as excessive management fees. As such, our synthetic hedge fund returns are clearly to be preferred over real hedge fund returns.

Number of Pages in PDF File: 52

Keywords: hedge fund, replication, copula, dynamic trading

JEL Classification: G10, G23

working papers series


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Date posted: November 30, 2005  

Suggested Citation

Kat, Harry M. and Palaro, Helder P., Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication (November 23, 2005). Alternative Investment Research Centre Working Paper No. 27; Cass Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=855424 or http://dx.doi.org/10.2139/ssrn.855424

Contact Information

Helder P. Palaro
Independent ( email )
Monaco
No contact information is available for Harry M. Kat
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