Posted: 16 Jul 2002
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: 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