Five current topics in hedge fund investing are examined from a quantitative perspective. First, we argue that investors should employ multi-factor models with observable market factors when attempting to separate alpha from beta. Second, we highlight the importance of testing for positive serial correlation in hedge fund returns, and we present evidence that this problem is pervasive. Third, we examine some of the difficulties with applying academic techniques to portfolio construction, and suggest several pragmatic solutions to overcome them. Fourth, we provide evidence that manager selection may be more important than strategy allocation for hedge fund investing. Fifth, we discuss the implication of negatively skewed returns in the construction of a portfolio of hedge funds.
{"title":"Hedge Fund Investing: Some Quantitative Notes","authors":"Craig W. French, J. Liew","doi":"10.2139/ssrn.679061","DOIUrl":"https://doi.org/10.2139/ssrn.679061","url":null,"abstract":"Five current topics in hedge fund investing are examined from a quantitative perspective. First, we argue that investors should employ multi-factor models with observable market factors when attempting to separate alpha from beta. Second, we highlight the importance of testing for positive serial correlation in hedge fund returns, and we present evidence that this problem is pervasive. Third, we examine some of the difficulties with applying academic techniques to portfolio construction, and suggest several pragmatic solutions to overcome them. Fourth, we provide evidence that manager selection may be more important than strategy allocation for hedge fund investing. Fifth, we discuss the implication of negatively skewed returns in the construction of a portfolio of hedge funds.","PeriodicalId":170638,"journal":{"name":"Johns Hopkins Carey Business School Research Paper Series","volume":"198 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115730047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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