Risk Measures for Autocorrelated Hedge Fund Returns

Antonio Di Cesare (), Philip Stork and Casper de Vries

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in the 'Journal of Financial Econometrics' , 2015, 13(4), 868-895.

Standard risk metrics tend to underestimate the true risks of hedge funds becauseof serial correlation in the reported returns. Getmansky et al. (2004) derive mean,variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Followingtheir lead, adjusted downside and global measures of individual and systemic risksare derived. We distinguish between normally and fat tailed distributed returnsand show that adjustment is particularly relevant for downside risk measures in thecase of fat tails. A hedge fund case study reveals that the unadjusted risk measuresconsiderably underestimate the true extent of individual and systemic risks.

Keywords: Hedge funds; Serial correlation; Systemic risk; VaR; Pareto distribution. (search for similar items in EconPapers)
JEL-codes: G12 G23 G28 (search for similar items in EconPapers)
Date: 2011-05-26
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Related works:
Journal Article: Risk Measures for Autocorrelated Hedge Fund Returns (2015)
Working Paper: Risk measures for autocorrelated hedge fund returns (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20110084

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