Journal article
Evaluating Hedge Funds with Pooled Benchmarks
Management science, Vol.62(1), pp.69-89
01/01/2016
DOI: 10.1287/mnsc.2014.2056
Abstract
The evaluation of hedge fund performance is challenging given the flexible nature of hedge funds' strategies and their lack of operational transparency. As a result, inference about skill is inevitably contaminated by the error in the benchmark model. To address this concern, we propose a model pooling approach to develop a fund-specific benchmark obtained by pooling a set of diverse attribution models. The weights assigned to the individual models in the pool are based on the log score criterion, an information-theoretic measure of the conditional performance of a model. We illustrate the advantages of a pooled benchmark over alternative approaches, including the Fung and Hsieh [Fung W, Hsieh DA (2004) Hedge fund benchmarks: A risk-based approach. Financial Analysts J. 60: 65-80] model, stepwise regression methods, and style-adjusted methods in the contexts of a real-time investment strategy, hedge fund replication, and fund failure prediction.
Details
- Title: Subtitle
- Evaluating Hedge Funds with Pooled Benchmarks
- Creators
- Michael S. O'Doherty - University of MissouriN. E. Savin - University of IowaAshish Tiwari - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Management science, Vol.62(1), pp.69-89
- Publisher
- Informs
- DOI
- 10.1287/mnsc.2014.2056
- ISSN
- 0025-1909
- eISSN
- 1526-5501
- Number of pages
- 21
- Grant note
- University of Missouri Research Board
- Language
- English
- Date published
- 01/01/2016
- Academic Unit
- Finance; Economics
- Record Identifier
- 9984380378502771
Metrics
2 Record Views