The Predictability of Alternative UCITS Fund Returns

Posted: 3 Jun 2017 Last revised: 1 Apr 2019

See all articles by Michael Busack

Michael Busack

Absolut Research GmbH

Wolfgang Drobetz

University of Hamburg

Jan Tille

Absolut Research GmbH

Date Written: May 1, 2017

Abstract

We study the out-of-sample predictability of the returns of pan-European harmonized mutual funds that apply hedge fund-like investment strategies (“Alternative UCITS”). Given these funds’ higher liquidity, investors could exploit relevant information much easier than for hedge funds, and use it for asset allocation and risk management. We use a set of 13 variables, fundamental as well as technical, and apply single predictor models, combination forecasts, and multivariate regression models. Our results show that in terms of out-of-sample R 2 , predictive models do not lead to more accurate forecasts than historic average returns. Nonetheless, forming portfolios based on predicted returns can yield substantial economic gains to investors, especially during times of market crises. Combination approaches and multivariate models can reduce estimation uncertainty stemming from time-varying predictive performance of single predictor models, leading to economic gains across different market environments.

Keywords: Alternative Mutual Funds, UCITS Funds, Hedge Funds, Return Prediction

JEL Classification: G11, G14, G23

Suggested Citation

Busack, Michael and Drobetz, Wolfgang and Tille, Jan, The Predictability of Alternative UCITS Fund Returns (May 1, 2017). Journal of Alternative Investments, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2978673 or http://dx.doi.org/10.2139/ssrn.2978673

Michael Busack

Absolut Research GmbH ( email )

Grosse Elbstr. 277a
Hamburg, 22767
Germany
+4940303779-0 (Phone)
+4940303779-15 (Fax)

HOME PAGE: http://www.absolut-research.de

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Jan Tille (Contact Author)

Absolut Research GmbH ( email )

Grosse Elbstr. 277
Hamburg, 22767
Germany

HOME PAGE: http://www.absolut-research.de

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