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: 11 May 2010
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: Suggested Citation
Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )
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Milan, 20126
Italy