 Attribution of hedge fund returns using a Kalman filterDaniel Thomson and Gary van Vuuren Applied Economics, 2018, vol. 50, issue 9, 1043-1058 Abstract: Hedge funds offer attractive investment possibilities because they engage in investment styles and opportunity sets which – because they are different from traditional asset class funds – generate different risk exposures. Conventional wisdom holds that hedge funds add value and provide unique investment opportunities because of their ability to invest in disparate risk exposures, and via the manager’s skill in selecting stocks and timing the market. In this article, a Kalman filter is used to decompose the time series of hedge fund returns into market timing and stock selection factors to establish whether fund managers really do generate statistically significant abnormal profits. Compelling evidence supports an alternative interpretation for the market timing return constituent. This work represents the first time the Kalman filter has been used to extract a time series of the capital asset pricing model’s dynamic variables for determining return component magnitudes. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:50:y:2018:i:9:p:1043-1058 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2017.1349290 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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