Hedge Fund Return Predictability Under the Magnifying Glass

69 Pages Posted: 1 Aug 2010 Last revised: 23 Jun 2022

See all articles by Doron Avramov

Doron Avramov

Reichman University - Interdisciplinary Center (IDC) Herzliyah

Laurent Barras

Universite du Luxembourg - Department of Finance

Robert Kosowski

Imperial College Business School; CEPR (Centre for Economic Policy Research)

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

Reichman University - Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 4610101
Israel

HOME PAGE: http://faculty.idc.ac.il/davramov/

Laurent Barras (Contact Author)

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg

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/

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