Downside Risk analysis applied to Hedge Funds universe

Josep Perelló ()

Papers from arXiv.org

Abstract: Hedge Funds are considered as one of the portfolio management sectors which shows a fastest growing for the past decade. An optimal Hedge Fund management requires an appropriate risk metrics. The classic CAPM theory and its Ratio Sharpe fail to capture some crucial aspects due to the strong non-Gaussian character of Hedge Funds statistics. A possible way out to this problem while keeping the CAPM simplicity is the so-called Downside Risk analysis. One important benefit lies in distinguishing between good and bad returns, that is: returns greater or lower than investor's goal. We revisit most popular Downside Risk indicators and provide new analytical results on them. We compute these measures by taking the Credit Suisse/Tremont Investable Hedge Fund Index Data and with the Gaussian case as a benchmark. In this way an unusual transversal lecture of the existing Downside Risk measures is provided.

Date: 2006-10, Revised 2007-04
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Citations: View citations in EconPapers (3)

Published in Physica 382 (2007) 213-218

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:physics/0610162

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