Do hedge funds dynamically manage systematic risk?

Ethan Namvar, Blake Phillips, Kuntara Pukthuanthong and Raghavendra Rau

Journal of Banking & Finance, 2016, vol. 64, issue C, 1-15

Abstract: Defining systematic risk management (SRM) skill as persistently low fund systematic risk, we find evidence of time varying allocation of hedge fund management effort across the business cycle. In weak market states, skilled managers focus on minimization of systematic risk via dynamic reallocations across asset classes at the cost of fund alpha and foregoing market timing opportunities. As markets strengthen, attention shifts to asset selection within consistent asset classes. The superior performance of low systematic risk funds previously documented arises due to the superior asset selection ability of managers in strong market states. Incremental allocations by investors arise due to this superior performance and not due to recognition of SRM skill.

Keywords: Hedge funds; Systematic risk; Alternative investments; Correlation risk (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:64:y:2016:i:c:p:1-15

DOI: 10.1016/j.jbankfin.2015.11.014

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