An advanced perspective on the predictability in hedge fund returns

Wegener, Christian Alexander; Nitzsch, Rüdiger von; Cengiz, Cetin B.

doi:10.1016/j.jbankfin.2010.05.005

Cited by 34 publications

(15 citation statements)

References 51 publications

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“…These results show that past information available to investors can be optimally combined into a performance forecast via an econometric model to predict hedge fund performance, but predictability at the level of the individual fund is fairly limited (cf. Wegener, von Nitzsch andCengiz, 2010, andAvramov, Barras andKosowski, 2013).…”

Section: Forecast Evaluationmentioning

confidence: 99%

Hedge Fund Flows and Performance Streaks: How Investors Weigh Information

Baquero

Verbeek

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. Terms of use: Documents inIn particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast models' out-of-sample predictions beat investor allocations by a significant margin, which suggests that the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not support the notion that sophisticated investors have superior information or superior information processing abilities.

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Section: Forecast Evaluationmentioning

confidence: 99%

Hedge Fund Flows and Performance Streaks: How Investors Weigh Information

Baquero

Verbeek

2015

SSRN Journal

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“…Different model/variable selection strategies have been used in the literature to cope with this problem. The methods of stepwise regression and of backward elimination have been widely used in hedge fund literature to identify significant pricing risk factors; see, for example, Agarwal and Naik (2004) and Wegener et al (2010). The use of information criteria is one other approach to variable selection; see, for example, Vrontos et al (2008) who used different statistical criteria for the determination of valuable factors in hedge fund pricing.…”

Section: Introductionmentioning

confidence: 99%

A Bayesian approach to detecting nonlinear risk exposures in hedge fund strategies

Giannikis

Vrontos

2011

Journal of Banking & Finance

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“…While this stepwise procedure is a standard approach for model selection, recent papers on hedge fund returns (see Vrontos et al, 2008;Wegener et al, 2010) highlight the benefits of using at this stage a GARCH-type model for the variance of the residuals. However, the literature generally considers the cases of static betas (see Vrontos et al, 2008) and in-sample rolling-window estimators (see Wegener et al, 2010). Since adapting such a complex specification to the state-space model introduced hereafter is not straightforward, we do not consider time-varying volatility coefficients in our return decomposition approach.…”

Section: þmentioning

confidence: 99%