Hedge Fund Return Predictability Under the Magnifying Glass

69 Pages Posted: 1 Aug 2010 Last revised: 12 Jul 2013

See all articles by Doron Avramov

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah

Laurent Barras

McGill University - Desautels Faculty of Management

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research); University of Oxford, Oxford-Man Institute of Quantitative Finance; Unigestion UK

Multiple version iconThere are 2 versions of this paper

Date Written: February 8, 2012

Abstract

This paper develops a unified approach to comprehensively analyze individual hedge fund return predictability, both in- and out-of-sample. In-sample, we find that variation in hedge fund performance across changing market conditions is widespread and economically significant. The predictability pattern is consistent with economic rationale, and largely reflects differences in key hedge fund characteristics, such as leverage or capacity constraints. Out-of-sample, we show that a simple strategy that combines the funds' return forecasts obtained from individual predictors delivers superior performance. We exploit this simplicity to highlight the drivers of this performance, and find that in- and out-of-sample predictability are closely related.

Keywords: Hedge Fund Performance, Return Predictability, Combination Forecasts

JEL Classification: G11, G23, C12

Suggested Citation

Avramov, Doron and Barras, Laurent and Kosowski, Robert, Hedge Fund Return Predictability Under the Magnifying Glass (February 8, 2012). Available at SSRN: https://ssrn.com/abstract=1650293 or http://dx.doi.org/10.2139/ssrn.1650293

Doron Avramov

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Laurent Barras (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
+15143988862 (Phone)

Robert Kosowski

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+442075943294 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/r.kosowski

CEPR (Centre for Economic Policy Research) ( email )

London
United Kingdom

HOME PAGE: http://www.cepr.org/

University of Oxford, Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Unigestion UK

4 Stratford Place
London, W1C1AT
United Kingdom

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