Style Consistency and Survival Probability in the Hedge Funds Industry
25 Pages Posted: 15 Jun 2001
Date Written: February 13, 2001
This study focuses on two problems that affect the choice of alternative investments, that is the style consistency of the manager and his survival probability. We first present a new quantitative approach to describe fund managers style consistency. We show, through hard and fuzzy clustering, that the investment style of a manager may depart over time from his reported style. Second, we apply a survival analysis method based on the Kaplan-Meier estimator, that takes into account the right-censorship of the data. A conditional survival analysis suggests that funds' investment styles, the size of their assets under management, their beta and style consistency can significantly affect their survival probability. Quantitative measures of style consistency and conditional survival probabilities thus offer useful information when selecting and monitoring hedge fund managers.
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