Recent Advances in Explaining Hedge Fund Returns: Implicit Factors and Exposures
32 Pages Posted: 18 Nov 2015
Date Written: March 6, 2015
We survey articles covering how hedge funds returns are explained, using linear and non-linear multifactor models that examine hedge funds as option portfolios or indices. We provide an integrated view of the implicit factor and the statistical factor models that are largely able to explain hedge funds returns. We present their evolution through time by discussing pioneering studies that made a significant contribution to knowledge, and also recent innovative studies that examine hedge funds exposures using advanced econometric methods. This is the first review that analyzes very recent studies that explain a large part of hedge fund variation. We conclude by presenting some gaps for future research.
Keywords: hedge fund performance; implicit factors; statistical factors; linear and non-linear multi-factor models; alpha and beta returns
JEL Classification: G110
Suggested Citation: Suggested Citation