The Impact of Non-Normality Risks and Tactical Trading on Hedge Fund Alphas

Most previous tests of hedge fund performance have failed to model the exposure of hedge fund returns to systematic non-normality risks, nor have they taken the tactical asset allocation decisions of hedge funds managers into account.

Author(s) :

Harry M. Kat

Professor of Risk Management, Sir John Cass Business School, City University (UK)

Joelle Miffre

Associate Professor of Finance, EDHEC Business School

This paper shows that failure to account for these features leads to incorrect statistical inferences on the performance of 1 out of 4 hedge funds and overstates hedge funds' alpha by 1.54% on average. Put another way, hedge funds offer abnormal returns that are 23.1% lower than commonly accepted.
The Impact of Non-Normality Risks and Tactical Trading on Hedge Fund Alphas...
(-1.00 B)
Type : Working paper
Date : le 08/05/2006
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la Recherche de l'EDHEC [] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

See Also

Mr. Edouard Philippe, the France’s Prime Minister, on EDHEC’s Lille campus
- 23-02-2018
In front of over 1,300 EDHEC students, France’s Prime Minister Edouard Philippe...
- 23-02-2018
February 23, EDHEC Business School organizes the Team France Export, in...
Assets replicating Scientific Beta’s multi-factor indices reach USD 25bn
- 22-02-2018
Scientific Beta, the smart beta index provider offshoot of EDHEC-Risk Institute, has...
EDHEC Named France National Champions of the KPMG International Case Competition
- 20-02-2018
Impact Consulting, a team of four, EDHEC M1 Business Management students, are national...