The Style Consistency of Hedge Funds
University of Geneva - Graduate School of Business (HEC-Geneva); Swiss Finance Institute
Lombard Odier Darier Hentsch & Cie
European Financial Management, Vol. 13, No. 2, pp. 287-308, March 2007
This study examines the style classification and the style consistency of hedge funds using a new proprietary database over the period May 1989 to April 1999. First, a hard clustering procedure is applied to classify hedge funds into homogeneous groups. It is shown that the methodology is robust and can be used to build stable hedge funds indexes. The method performs equally well as the principal component analysis in explaining in- and out-of-sample cross-sectional hedge funds' returns. Second, we extend hard to fuzzy cluster memberships, relaxing the full assignment of the funds to individual clusters. We apply the fuzzy clustering methodology to estimate hedge funds' probabilistic exposure to various styles. We introduce three consistency indicators to quantify the hedge fund managers' style opportunism levels. We finally document that there is no evidence that style consistency leads to superior hedge funds' performance.
Number of Pages in PDF File: 22
Date posted: March 4, 2007
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollobot1 in 0.250 seconds