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Title | Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns |
Author | Antonio Diez de los Rios and René Garcia |
Type | Working Paper 2006-31 |
Date of publication |
September 2006 |
Language | English |
Abstract |
Several studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies. The authors provide a statistical methodology to test for such non-linear features with the returns on any benchmark portfolio. They estimate the portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the contingent claim features, and test whether the identified non-linear features have a positive value. The authors find that not all categories of funds exhibit significant non-linearities, and that only a few strategies as a group provide significant value to investors. Individual funds may still provide value in an otherwise poorly performing category. |
Bank topic index |
Econometric and statistical methods; Financial institutions |
JEL classification |
C1, C5, G1 |
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