Betas, Characteristics and the Cross-Section of Hedge Fund Returns

80 Pages Posted: 13 Nov 2007 Last revised: 9 Jan 2008

Mark M. Klebanov

University of Chicago - Graduate School of Business (GSB)

Date Written: January 7, 2008

Abstract

I group individual hedge funds on their ex ante betas into portfolios that have reliably different ex post betas. This approach constitutes an alternative to classifying funds by investment style and offers a way to accurately quantify individual funds' exposure to systematic risk. Hedge funds' characteristics predict returns in ways that are unrelated to risk exposures. Abnormal returns associated with characteristics are minimal. On average, betas (and characteristics) do not explain more than 20% (30%) of the cross-sectional variation in hedge fund returns. Under some assumptions about the data, hedge funds' abnormal returns justify their fees.

Keywords: Hedge funds

JEL Classification: G10, G19

Suggested Citation

Klebanov, Mark M., Betas, Characteristics and the Cross-Section of Hedge Fund Returns (January 7, 2008). Available at SSRN: https://ssrn.com/abstract=1029644 or http://dx.doi.org/10.2139/ssrn.1029644

Mark M. Klebanov (Contact Author)

University of Chicago - Graduate School of Business (GSB) ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Paper statistics

Downloads
513
Rank
43,571
Abstract Views
1,759