Economics at your fingertips  

Hedge Fund Replication: A Model Combination Approach

Michael S. O’Doherty, N. E. Savin and Ashish Tiwari

Review of Finance, 2017, vol. 21, issue 4, 1767-1804

Abstract: Recent years have seen increased demand from institutional investors for passive replication products that track the performance of hedge fund strategies using liquid investable assets such as futures contracts. In practice, linear replication methods suffer from poor tracking performance and high turnover. We propose a model combination approach to index replication that pools information from a diverse set of pre-specified factor models. Compared with existing methods, the pooled clone strategies yield consistently lower tracking errors, generate less severe portfolio drawdowns, and require substantially smaller trading volume. The pooled hedge fund clones also provide economic benefits in a portfolio allocation context.

Keywords: Hedge Funds; Model Pooling; Model Combination; Hedge Fund Replication; Log Score (search for similar items in EconPapers)
JEL-codes: C11 C51 C53 C58 G17 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

Page updated 2019-11-07
Handle: RePEc:oup:revfin:v:21:y:2017:i:4:p:1767-1804.