Asset-based Hedge-fund Styles and Portfolio Diversification

Posted: 16 Jul 2002  

David A. Hsieh

Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

William Fung

Maple Financial Group

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Abstract

Asset-based style factors link returns of hedge-fund strategies to observed market prices. They provide explicit and unambiguous descriptions of hedge-fund strategies that tells us both the nature as well as the quantity of risk. Asset-based style factors are key inputs to portfolio construction and for benchmarking hedge-fund performance on a risk-adjusted basis. The model in Fung and Hsieh (2001a) and Mitchell Pulvino (2001) can be used to construct asset-based style factors. In is shown that the model in Fung and Hsieh (2001a) correctly predicted the return behavior trend-following strategies during out-of-sample periods and particularly so during stressful market conditions like September 2001.

Keywords: Hedge Fund, Style, Risk, Portfolio Diversification

JEL Classification: G1, G2

Suggested Citation

Hsieh, David A. and Fung, William, Asset-based Hedge-fund Styles and Portfolio Diversification. Financial Analyst Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=311360

David Arthur Hsieh (Contact Author)

Duke University - Fuqua School of Business ( email )

Department of Finance
Box 90120
Durham, NC 27708-0120
United States
919-660-7779 (Phone)
919-660-7961 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William (Bill) Fung

Maple Financial Group ( email )

79 Wellington Street West
Suite 3500
Toronto, Ontario M5K 1K7
Canada

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