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Hedge Fund Performance With The Treynor-Black Model, Gurkamal S. Pannu

Honors Theses

This paper seeks to analyze the information ratio differences between long/short hedge funds over the past two decades using the Treynor-Black model. The Treynor-Black model is a method to derive an optimal portfolio allocation across safe and risky assets, based off of expected alphas of active investments and the unsystematic volatility that can be attributed to each given security. We first developed and implemented a model to forecast information ratios on a database of long/short hedge funds. With the predicted information ratios, we calculated out-of-sample allocation weights from a Treynor-Black active portfolio model. These weights were then tested in a …