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Hedge Fund Index Engineering Methodologies: A Comparison and Demonstration

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Publication details

JournalApplied Economics
DateAccepted/In press - 16 May 2017
DateE-pub ahead of print - 26 May 2017
DatePublished (current) - 2018
Issue number6
Number of pages17
Pages (from-to)596-612
Early online date26/05/17
Original languageEnglish


We examine hedge fund (HF) index construction methodologies, by describing and analyzing case studies from two well-known database vendors and evaluating them using numerical examples on the same dataset. Despite the fact that they follow a similar due diligence process, there are great differences in the index engineering practices arising from different quantitative techniques, even for indices in the same HF category. However, those quantitative techniques provide similar results. The differences are rather due to the use of different HF universes and different inclusion criteria. This paper is the first to use actual numerical case studies to illustrate and compare how HF index engineering works. Having read it the reader will have a good understanding of how HF indices are formed.

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© 2017 Informa UK Limited, trading as Taylor & Francis Group. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

    Research areas

  • Hedge funds, classification, construction methodology, indexes, indices

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