Assessing Market Risk for Hedge Funds Portfolios

François-Serge Lhabitant
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François-Serge Lhabitant: Union Bancaire Privée and Thunderbird, the AmericanGraduate School of International Management

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: We suggest an empirical model to analyze the investment style of individual hedge funds and funds of funds. Our approach is based on a mixture of the style analysis approach suggested by Sharpe (1988), the factor push approach used in stress testing, and historical simulation. An interesting and straightforward extension of this model is the estimation of value-at-risk (VaR) figures. This extension is tested using a very intuitive implementation over a large sample of 2,934 hedge funds over the 1994-2000 period. Both the in-the-sample and the out-of-sample results suggest that the proposed approach is useful and may constitute a valuable tool for assessing the investment style and risk of hedge funds.

Keywords: hedge funds; style analysis; value at risk (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2001-03
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Citations: View citations in EconPapers (10)

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