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Hedge Fund Portfolio Diversification Strategies across the GFC

David Allen, Michael McAleer, Shelton Peiris and Abhay K. Singh
Additional contact information
Shelton Peiris: University of Sydney, Australia
Abhay K. Singh: Edith Cowan University, Australia

No 14-151/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper features an analysis of the effectiveness of a range of portfolio diversication strategies as applied to a set of 17 years of monthly hedge fund index returns on a set of ten market indices representing 13 major hedge fund categories, as compiled by the EDHEC Risk Institute. The 17-year period runs from the beginning of 1997 to the end of August 2014. The sample period, which incorporates both the Global Financial Crisis (GFC) and subsequent European Debt Crisis (EDC), is a challenging one for the application of diversication and portfolio investment strategies. The analysis features an examination of the di- versification benefits of hedge fund investments through successive crisis periods. The connectedness of the Hedge Fund Indices is explored via application of the Diebold and Yilmaz (2009, 2014) spillover index. We conduct a series of portfolio optimisation analyses: comparing Markowitz with naive diversication, and evaluate the relative effectiveness of Markowitz portfolio optimisation with various draw-down strategies, using a series of backtests. Our results suggest that Markowitz optimisation matches the characteristics of these hedge fund indices quite well.

Keywords: Hedge Fund Diversication; Spillover Index; Markowitz Analaysis (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Date: 2014-12-08
New Economics Papers: this item is included in nep-fmk
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Related works:
Working Paper: Hedge Fund Portfolio Diversification Strategies Across the GFC (2014) Downloads
Working Paper: Hedge Fund Portfolio Diversification Strategies Across the GFC (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20140151

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