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Hedge Fund Allocation under Higher Moments and Illiquidity
Mälardalens högskola, Institutionen för matematik och fysik.
2005 (Engelska)Ingår i: HEDGE FUNDS: INSIGHTS IN PERFORMANCE MEASUREMENT, RISK ANALYSIS, AND PORTFOLIO ALLOCATION, John Wiley & Sons , 2005Kapitel i bok, del av antologi (Övrigt vetenskapligt)
Abstract [en]

We use the discrete-time dynamic investment model to evaluate the gains from including hedge funds in the investment opportunity set. In this multi-period framework, an investor's utility is affected by all moments of the return distribution. We assume that investors rebalance their portfolios on a monthly basis, and we compare the performance of portfolios which may include hedge funds versus portfolios consisting of stocks and bonds only. Our findings show that: (1) investors will allocate wealth to hedge funds even when they take into account deviations from normality in hedge fund returns. Those ex ante optimal allocations result in portfolios that ex post have higher geometric returns compared to the case in which hedge fund investing is not permitted; (2) investors that form portfolios taking all moments of the return distribution into account construct portfolios that are very similar to the portfolios being constructed by investors who care only about expected return and standard deviation, suggesting that the two first moments of the return distribution dominate higher moments; (3) the positive effect on capital growth from including hedge funds into the portfolios remains, although smaller, when the so-called "stale-pricing effect" is considered; and (4) lock-up periods and advance notice periods may force investors to have portfolios that deviate from their targeted ex ante optimal portfolios. Through a simple experiment we show that this inability to rebalance hedge fund allocations may seriously impact the benefits that hedge fund allocations appear to offer.

Ort, förlag, år, upplaga, sidor
John Wiley & Sons , 2005.
Nyckelord [en]
hedge funds, asset allocation, international investment
Nationell ämneskategori
Beräkningsmatematik Ekonomi och näringsliv
Identifikatorer
URN: urn:nbn:se:mdh:diva-3410ISBN: 0-471-73743-7 (tryckt)OAI: oai:DiVA.org:mdh-3410DiVA, id: diva2:116074
Tillgänglig från: 2007-04-27 Skapad: 2007-04-27 Senast uppdaterad: 2015-07-28Bibliografiskt granskad

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Totalt: 188 träffar
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