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An Alternative Approach to Alternative Beta

Thierry Roncalli

Amundi Asset Management; University of Evry

Jerome Teiletche


April 1, 2007

Hedge fund replication based on factor models is encountering growing interest. In this paper, we investigate the implications of substituting standard rolling windows regressions, which appear ad-hoc, with more efficient methodologies like the Kalman Filter. We show that the copycats constructed this way offer risk-return profiles which share several characteristics with the ones posted by hedge funds indices: Sharpe ratios above buy-and-hold strategies on standard assets, moderate correlation with standard assets and limited drawdowns during equity downward trends. An interesting result is that the shortfall risk seems less important than with hedge fund indices and regressions based-trackers. We finally propose new breakdowns of hedge fund performance into alpha, traditional beta and alternative beta.

Number of Pages in PDF File: 17

Keywords: Hedge funds, factor models, beta, alpha, replication, Kalman filter

JEL Classification: G00

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Date posted: November 30, 2007  

Suggested Citation

Roncalli, Thierry and Teiletche, Jerome, An Alternative Approach to Alternative Beta (April 1, 2007). Available at SSRN: https://ssrn.com/abstract=1035521 or http://dx.doi.org/10.2139/ssrn.1035521

Contact Information

Thierry Roncalli (Contact Author)
Amundi Asset Management ( email )
90 Boulevard Pasteur
Paris, 75015
University of Evry ( email )
Boulevard Francois Mitterrand
F-91025 Evry Cedex
Jerome Teiletche
Unigestion ( email )
8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
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References:  23
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