Hedge fund pricing and model uncertainty

Spyridon D. Vrontos, Ioannis D. Vrontos and Daniel Giamouridis

Journal of Banking & Finance, 2008, vol. 32, issue 5, 741-753

Abstract: This article uses Bayesian model averaging to study model uncertainty in hedge fund pricing. We show how to incorporate heteroscedasticity, thus, we develop a framework that jointly accounts for model uncertainty and heteroscedasticity. Relevant risk factors are identified and compared with those selected through standard model selection techniques. The analysis reveals that a model selection strategy that accounts for model uncertainty in hedge fund pricing regressions can be superior in estimation/inference. We explore potential impacts of our approach by analysing individual funds and show that they can be economically important.

Date: 2008
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Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:5:p:741-753

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