Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns

Several studies have put forward that hedge fund returns exhibit a non-linear relationship with equity market returns, captured either through constructed portfolios of traded options or piece-wise linear regressions.

Author(s):

Antonio Diez de los Rios

Rene Garcia

EDHEC Business School

This paper provides a statistical methodology to unveil such non-linear features with the returns on any selected benchmark index. We estimate a 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 identifed non-linear features have a positive value. We find that not all indexes for categories of funds exhibit significant non-linearities, and that only a few strategies as a group provide significant value to investors. Our methodology helps identify individual funds that provide value in an otherwise poorly performing category.

Type: Working paper
Date: le 05/11/2007
Research Cluster : Finance

See Also

Immersion at Station F for start-up challenge finalists !
News
- 13-10-2021
Devised for students with start-up projects on the Pre-Master and Master 1 years of the...
Financing your MBA - are you eligible for a scholarship?
News
- 12-10-2021
How to finance your Global MBA abroad is a critical question you need to think about...
Apprenticeship program: a perfect combination of academic knowledge and professional experience
News
- 12-10-2021
Yiqing Ma joined EDHEC Apprenticeship Track in 2019. She shares insights into the...
CRÉDIT AGRICOLE NORD DE FRANCE, AMUNDI AND CRÉDIT AGRICOLE CIB, PARTNERS OF EDHEC BUSINESS SCHOOL’S MSC IN CLIMATE CHANGE & SUSTAINABLE FINANCE
News
- 08-10-2021
Three major players in the Crédit Agricole Group operating in the banking and finance...