Portfolio Allocation of Hedge Funds

Bruder, Benjamin; Darolles, Serge; Koudiraty, Abdul K.; Roncalli, Thierry

doi:10.2139/ssrn.1804511

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Portfolio Allocation of Hedge Funds

38 Pages Posted: 10 Apr 2011

See all articles by Benjamin Bruder

Thierry Roncalli

Amundi Asset Management; University of Evry

Date Written: January 31, 2011

Abstract

Research in hedge fund investing proposes different solutions to build optimal hedge fund portfolios. However, these solutions are direct extensions of the usual meanvariance framework, and still suffer from model risks. More complex approaches start to be used but are related to numerous estimation risks. We compare in this paper the out-sample properties of different allocation models through a dynamic investment exercise using hedge fund indices. We show that the best out-of-sample properties are obtained by allocation models that take into account the specific statistical properties of hedge fund returns.

Keywords: Hedge funds, portfolio allocation, higher-order moments, regime-switching models

JEL Classification: G11, G24, C53

Suggested Citation: Suggested Citation

Bruder, Benjamin and Darolles, Serge and Koudiraty, Abdul K. and Roncalli, Thierry, Portfolio Allocation of Hedge Funds (January 31, 2011). Available at SSRN: https://ssrn.com/abstract=1804511 or http://dx.doi.org/10.2139/ssrn.1804511