Modelling and Replicating Hedge Fund Returns

The University of Melbourne, Centre for Actuarial Studies, Research Paper Series No. 203

22 Pages Posted: 28 Aug 2012 Last revised: 31 Aug 2012

See all articles by Wang Chun Wei

Wang Chun Wei

University of Queensland - Faculty of Business, Economics and Law; University of Queensland - Finance

Date Written: March 1, 2010

Abstract

This paper provides discussion on factor-based modelling for hedge fund returns, and demonstrates replication via both rolling windows and Kalman filters. In particular, we focus on estimating time-varying hedge fund returns exposure through various asset-based style (ABS) factors. It is shown that certain hedge fund strategies are more susceptible to cloning, suggesting a higher likelihood of creating transparent liquid replication products as either an alternative investment vehicle or as a benchmarking / style analysis tool for institutional investors.

Keywords: hedge funds, hedge fund replication, Kalman filtering

JEL Classification: G11, G12

Suggested Citation

Wei, Wang Chun, Modelling and Replicating Hedge Fund Returns (March 1, 2010). The University of Melbourne, Centre for Actuarial Studies, Research Paper Series No. 203, Available at SSRN: https://ssrn.com/abstract=2137395 or http://dx.doi.org/10.2139/ssrn.2137395

Wang Chun Wei (Contact Author)

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

University of Queensland - Finance ( email )

Australia

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