Net Inflows and Time-Varying Alphas: The Case of Hedge Funds

Quantitative and Qualitative Analysis in Social Sciences, Vol. 2, No. 3, pp. 67-94, 2008

Posted: 3 Oct 2006 Last revised: 9 Jun 2013

See all articles by Andrea Beltratti

Andrea Beltratti

Bocconi University - Department of Finance

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Center for Economic Research on Pensions and Welfare Policies (CeRP); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Date Written: March 17, 2007

Abstract

We introduce a multivariate components model for returns and net relative inflows into hedge funds, accounting for time-varying market premia. We estimate alpha as an unobserved variable of the econometric model. We then assess whether several categories of hedge funds do produce alphas and whether the latter are related to capital inflows. Our results point to a positive correlation between past alphas and future flows and a negative relation between past flows and future alphas in the case of arbitrage-based styles. We do not find any structural decline in alpha for most hedge fund categories.

Keywords: Hedge funds, performance, asset pricing models, unobserved components models

JEL Classification: G2, G11, G15, C32

Suggested Citation

Beltratti, Andrea and Morana, Claudio, Net Inflows and Time-Varying Alphas: The Case of Hedge Funds (March 17, 2007). Quantitative and Qualitative Analysis in Social Sciences, Vol. 2, No. 3, pp. 67-94, 2008. Available at SSRN: https://ssrn.com/abstract=934047

Andrea Beltratti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

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