Understanding Mutual Fund and Hedge Fund Styles Using Return Based Style Analysis

Arik Ben Dor and Ravi Jagannathan

No 9111, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide an introduction to the use of return based style analysis of Sharpe (1992) in practice. We demonstrate the importance of selecting the right style benchmarks and how the use of inappropriate style benchmarks may lead to wrong conclusions. When style analysis is applied to sector oriented funds such as healthcare, precious metals, energy, technology, etc., the set of benchmarks should include sector or industry indexes. Following Glosten and Jagannathan (1994), Fung and Hsieh (2001), and Agarwal and Naik (2001), we show how to analyze the investment style of hedge fund managers by including the returns on selected option based strategies as style benchmarks. In the examples we consider, return based style analysis provides insights not available through commonly used 'peer' evaluation alone.

JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2002-08
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Dor, Arik Ben, Ravi Jagannathan, and Iwan Meier. "Understanding Mutual Fund and Hedge Fund Styles Using Return-Based Style Analysis." Journal of Investment Management 1, 1 (1st Quarter 2003): 94-134.

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