Hedge Funds Investing: A Quantitative Look Inside the Black Box

There is an increasing amount of evidence that shows the benefits of considering hedge funds as an asset class at the strategic asset allocation level. The investors’ greatest challenge remains the identification of desirable investment vehicles, since very little formal quantitative analysis of hedge funds has been done in the past.

Author(s):

Francois-Serge Lhabitant

Professor of finance, EDHEC Business SchoolHead of Research, Kedge Capital

 In this paper, we suggest an innovative approach to hedge fund investing, which is valid at the individual fund level as well as at the aggregate portfolio level (e.g. portfolio of hedge funds). This approach only relies on hedge funds historical returns. We provide several illustrations, including static and dynamic style analysis, benchmark construction, performance assessment, and value-at-risk calculations.

Type: Working paper
Date: le 01/04/2004
Research Cluster : Finance

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