On the High-Frequency Dynamics of Hedge Fund Risk Exposures

62 Pages Posted: 29 Jun 2011 Last revised: 15 Jan 2014

Andrew J. Patton

Duke University - Department of Economics

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2011

Abstract

We propose a new method to model hedge fund risk exposures using relatively high frequency conditioning variables. In a large sample of funds, we find substantial evidence that hedge fund risk exposures vary across and within months, and that capturing within-month variation is more important for hedge funds than for mutual funds. We consider different within-month functional forms, and uncover patterns such as day-of-the-month variation in risk exposures. We also find that changes in portfolio allocations, rather than changes in the risk exposures of the underlying assets, are the main drivers of hedge funds' risk exposure variation.

Keywords: beta, time-varying risk, performance evaluation, window-dressing, hedge funds, mutual funds

JEL Classification: G23, G11, C22

Suggested Citation

Patton, Andrew J. and Ramadorai, Tarun, On the High-Frequency Dynamics of Hedge Fund Risk Exposures (December 14, 2011). Available at SSRN: https://ssrn.com/abstract=1874668 or http://dx.doi.org/10.2139/ssrn.1874668

Andrew J. Patton

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

HOME PAGE: http://econ.duke.edu/~ap172/

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

HOME PAGE: http://www.tarunramadorai.com

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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