Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns

Antonio Diez de los Rios and René Garcia

Staff Working Papers from Bank of Canada

Abstract: Several studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies. The authors provide a statistical methodology to test for such non-linear features with the returns on any benchmark portfolio. They estimate the portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the contingent claim features, and test whether the identified non-linear features have a positive value. The authors find that not all categories of funds exhibit significant non-linearities, and that only a few strategies as a group provide significant value to investors. Individual funds may still provide value in an otherwise poorly performing category.

Keywords: Econometric and statistical methods; Financial institutions (search for similar items in EconPapers)
JEL-codes: C1 C5 G1 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2006
New Economics Papers: this item is included in nep-ets, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Assessing and valuing the nonlinear structure of hedge fund returns (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-31

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