Risk Measures for Autocorrelated Hedge Fund Returns

Antonio Di Cesare (), Philip Stork and Casper de Vries

Journal of Financial Econometrics, 2015, vol. 13, issue 4, 868-895

Abstract: Standard risk metrics tend to underestimate the true risks of hedge funds because of serial correlation in the reported returns. Getmansky, Lo, and Makarov (2004) derive mean, variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Following their lead, we derive adjusted downside and global measures of individual and systemic risks. We distinguish between normally and fat-tailed distributed returns and show that adjustment is particularly relevant for downside risk measures in the case of fat tails. An empirical analysis reveals that unadjusted risk measures can considerably underestimate the true extent of individual and systemic risks for hedge funds.

Keywords: hedge funds; Pareto distribution; serial correlation; systemic risk; VaR. (search for similar items in EconPapers)
JEL-codes: G12 G23 G28 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Risk measures for autocorrelated hedge fund returns (2011)
Working Paper: Risk Measures for Autocorrelated Hedge Fund Returns (2011)
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