Abstract
We investigate US hedge funds' performance. Our proposed model contains exogenous and endogenous break points, based on business cycles and on a regime switching process conditional on different states of the market. During difficult market conditions most hedge fund strategies do not provide significant alphas. At such times hedge funds reduce both the number of their exposures to different asset classes and their portfolio allocations, while some strategies even reverse their exposures. Directional strategies share more common exposures under all market conditions compared to non-directional strategies. Factors related to commodity asset classes are more common during these difficult conditions whereas factors related to equity asset classes are most common during good market conditions. Falling stock markets are harsher than recessions for hedge funds.
| Original language | English |
|---|---|
| Pages (from-to) | 221-237 |
| Number of pages | 17 |
| Journal | International Review of Financial Analysis |
| Volume | 56 |
| Early online date | 3 Feb 2018 |
| DOIs | |
| Publication status | Published - 1 Mar 2018 |
Bibliographical note
© 2018 Elsevier Inc. All rights reserved. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy.Keywords
- Alpha and beta returns
- Hedge funds
- Multi-factor models
- Performance
- Risk exposures
- Statistical factors
