Trading off accuracy for speed: Hedge funds' decision-making under uncertainty

Catalin Dragomirescu-Gaina, Dionisis Philippas and Mike Tsionas

International Review of Financial Analysis, 2021, vol. 75, issue C

Abstract: Active managers operating quick portfolio adjustments, backed only by some rough estimates and loose predictions, might improve their market timing performances to benefit in turbulent times, but oversimplification can lead to an inability to profit in calm markets. By selecting accuracy levels upfront, through different data-filtering techniques, we expose a trade-off between prediction accuracy and reaction speed across different hedge funds' investment styles. Our empirical analysis shows that less accurate predictions can speed up reactions to unexpected changes in a large set of uncertainty and risk measures. We justify and complement these findings with a simulation exercise.

Keywords: Dynamic decision-making; Portfolio strategy; Uncertainty (search for similar items in EconPapers)
JEL-codes: C14 C24 G11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:75:y:2021:i:c:s1057521921000715

DOI: 10.1016/j.irfa.2021.101728

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