The (Mis)Behavior of Hedge Fund Strategies: A Network-Based Analysis
Posted: 22 Jun 2017
Date Written: June 22, 2017
We discuss a network-based methodology that models hedge fund strategies across the superordinate-subordinate dimension to gain new insights into their interrelation. This methodology uncovers considerable misbehavior among various hedge fund strategies from the network perspective. Firstly, we conduct a static analysis demonstrating misbehaviors for the full-sample dataset. In addition, we perform dynamic bootstrapping analyses offering details on the misbehavior of selected hedge fund strategies. Finally, we demonstrate that numerous network-based behavioral properties of hedge funds strategies can explain current and future hedge fund returns. The last aspect is of significant relevance, as it shows that network-based information has the potential to act as a value-adding warning indicator for funds of hedge funds. Summing up, we think that this article provides novel and valuable tools for hedge fund investors, managers and analysts.
Keywords: Financial Networks, Minimum Spanning Tree, Bootstrapping, Hedge Funds, Forecasting, Graphical Analysis
JEL Classification: D85, C22, G17, C53
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