Replicas: Have Hedge Funds Re-Resurrected as Traditional Beta?

58 Pages Posted: 9 Oct 2020 Last revised: 1 Apr 2021

See all articles by Joseph Cherian

Joseph Cherian

NUS Business School

Christine Kon

Xen Capital

Ziyun Li

Singapore Exchange Ltd.; National University of Singapore (NUS) - NUS Business School

Date Written: August 28, 2020

Abstract

With continued strong inflows into hedge fund strategies, it is imperative for researchers to study if hedge funds are still worth their high fees. In an updated and comprehensive study covering both North American and Asian hedge funds, we find market risk factors explain up to 81% of hedge fund portfolios’ variance, while out-of-sample clones have up to 98% correlation with realized returns. So-called “market neutral” funds take on significant short-term market bets, where rolling beta clones display up to 74% correlation with realized returns. Overall, returns attributable to skill have declined systematically, with clones outperforming hedge fund indices.

Keywords: Hedge Fund Risk Exposures, Hedge Fund Clones, Market Risk Factors, Alpha, Beta, Alternative Beta

JEL Classification: G11, G12, G14, G19

Suggested Citation

Cherian, Joseph and Kon, Christine and Li, Ziyun, Replicas: Have Hedge Funds Re-Resurrected as Traditional Beta? (August 28, 2020). Available at SSRN: https://ssrn.com/abstract=3704649 or http://dx.doi.org/10.2139/ssrn.3704649

Joseph Cherian

NUS Business School ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
+65-6516-5991 (Phone)

HOME PAGE: http://bschool.nus.edu/biography#JosephCherian

Christine Kon

Xen Capital ( email )

1330 Avenue of the Americas
Suite 23A
New York, NY 10019
United States

Ziyun Li (Contact Author)

Singapore Exchange Ltd. ( email )

2 Shenton Way
#19-00 SGX Centre 1
Singapore 068804
Singapore

National University of Singapore (NUS) - NUS Business School ( email )

15 Kent Ridge Dr
Singapore, 129800
Singapore

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