Beta Active Hedge Fund Management

62 Pages Posted: 14 Mar 2012 Last revised: 26 Apr 2017

Jun Duanmu

Louisiana Tech University - Department of Economics and Finance

Alexey Malakhov

University of Arkansas, Fayetteville - Sam M. Walton College of Business, Department of Finance

William R. McCumber

College of Business, Louisiana Tech University

Date Written: April 21, 2017

Abstract

We reconsider the question of whether beta-centric hedge fund activity is predictive of superior performance. We construct a measure of overall beta activity of fund managers, Beta Activity, and find evidence that top beta active managers deliver superior long term out-of-sample performance compared to top alpha active managers. Beta Activity successfully captures the time varying nature of beta exposures that could be interpreted as a common factor with both SR (systematic risk) and (1-R2) measures, completely explaining the long term predictive significance of SR, and partially explaining the long term significance of (1-R2). Beta Activity also compares favorably to extant measures of market timing, capturing or partially capturing the explanatory power of such measures in hedge fund performance.

Keywords: hedge funds, alpha, beta, active management, factor timing, performance measurement, performance prediction

JEL Classification: G11, G23

Suggested Citation

Duanmu, Jun and Malakhov, Alexey and McCumber, William R., Beta Active Hedge Fund Management (April 21, 2017). Available at SSRN: https://ssrn.com/abstract=2021240 or http://dx.doi.org/10.2139/ssrn.2021240

Jun Duanmu

Louisiana Tech University - Department of Economics and Finance ( email )

Ruston, LA 71272
United States

Alexey Malakhov (Contact Author)

University of Arkansas, Fayetteville - Sam M. Walton College of Business, Department of Finance ( email )

Fayetteville, AR 72701
United States
479-575-6118 (Phone)
479-575-4230 (Fax)

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

William R. McCumber

College of Business, Louisiana Tech University ( email )

COBB 209
P.O. Box 10318
Ruston, LA 71272
United States
318-257-2389 (Phone)
318-257-4253 (Fax)

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