Hedge Fund Excess Returns Under Time-Varying Beta
Ron Bird () and
Susan Thorp ()
No 9, Working Paper Series from The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney
We construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, illiquidity and tail events. We also adjust for database biases arising from voluntary self-reporting. Using a constant beta model, we find no evidence of excess returns for the average hedge fund manager between 1994 and 2009. Furthermore, we find no evidence of market timing skill. These conclusions are unchanged when we allow for time-varying beta, volatility clustering and leverage effects. In fact, allowing for dynamics in conditional mean and variance equations further erodes evidence of excess returns.
Keywords: hedge funds; time-varying beta; GARCH (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 33 pages
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:uts:pwcwps:9
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