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Full-Text Articles in Business
Active Factor Investing: Hedge Funds Versus The Rest Of Us, Jun Duanmu, Yongjia Li, Alexey Malakhov
Active Factor Investing: Hedge Funds Versus The Rest Of Us, Jun Duanmu, Yongjia Li, Alexey Malakhov
Finance Faculty Publications and Presentations
We examine whether the success of hedge fund market timing strategies can be replicated. We develop a methodology for creating a portfolio of ETFs to capture risk factor exposures of market timing hedge funds identified using extant market timing measures. We find that the top market timing hedge funds outperform their ETF clone peers and the superior performance cannot be replicated. We show that the irreplicable market timing skills are more profound in certain hedge fund styles. Finally, we provide evidence that the success of market timing strategies is driven by non-cloneable hedge funds that possess managerial skills.
Capturing Hedge Fund Risk Factor Exposures: Hedge Fund Return Replication With Etfs, Jun Duanmu, Yongjia Li, Alexey Malakhov
Capturing Hedge Fund Risk Factor Exposures: Hedge Fund Return Replication With Etfs, Jun Duanmu, Yongjia Li, Alexey Malakhov
Finance Faculty Publications and Presentations
We develop a new factor selection methodology of spanning the space of hedge fund risk factors with all available exchange traded funds (ETFs). We demonstrate the efficacy of the methodology with out-of-sample individual hedge fund return replication by ETF clone portfolios. This is consistent with our interpretation of ETF returns as proxies to risk factors driving hedge fund returns. We further consider portfolios of “cloneable” and “noncloneable” hedge funds, defined as top and bottom in-sample R2 matches, and demonstrate that our ETF clone portfolios slightly outperform cloneable hedge funds out of sample.