Capturing hedge fund risk factor exposures: Hedge fund return replication with ETFs

Jun Duanmu, Yongjia Li and Alexey Malakhov

The Financial Review, 2020, vol. 55, issue 3, 405-431

Abstract: We develop a new factor selection methodology of spanning the space of hedge fund risk factors with all available exchange traded funds (ETFs). We demonstrate the efficacy of the methodology with out‐of‐sample individual hedge fund return replication by ETF clone portfolios. This is consistent with our interpretation of ETF returns as proxies to risk factors driving hedge fund returns. We further consider portfolios of “cloneable” and “noncloneable” hedge funds, defined as top and bottom in‐sample R2 matches, and demonstrate that our ETF clone portfolios slightly outperform cloneable hedge funds out of sample.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/fire.12221

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:55:y:2020:i:3:p:405-431

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0732-8516

Access Statistics for this article

The Financial Review is currently edited by Cynthia J. Campbell and Arnold R. Cowan

More articles in The Financial Review from Eastern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().