Assessing Market Risk for Hedge Funds and Hedge Funds Portfolios

38 Pages Posted: 30 Apr 2001

See all articles by Francois Lhabitant

Francois Lhabitant

Kedge Capital Fund Management; EDHEC Business School

Date Written: March 2001


We suggest an empirical model to analyze the investment style of individual hedge funds and funds of funds. Our approach is based on a mixture of the style analysis approach suggested by Sharpe (1988), the factor push approach used in stress testing, and historical simulation. An interesting and straightforward extension of this model is the estimation of value-at-risk (VaR) figures. This extension is tested using a very intuitive implementation over a large sample of 2,934 hedge funds over the 1994-2000 period. Both the in-the-sample and the out-of-sample results suggest that the proposed approach is useful and may constitute a valuable tool for assessing the investment style and risk of hedge funds.

Keywords: Hedge funds, value at risk, style analysis

JEL Classification: G10

Suggested Citation

Lhabitant, Francois-Serge, Assessing Market Risk for Hedge Funds and Hedge Funds Portfolios (March 2001). EFA 2001 Barcelona Meetings; EFMA 2001 Lugano Meetings; FAME Research Paper No 24. Available at SSRN: or

Francois-Serge Lhabitant (Contact Author)

Kedge Capital Fund Management ( email )

28-30 The Parade
St Helier, JE1 1ZZ


EDHEC Business School ( email )

393 Prom. des Anglais
Nice, 06200

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