How Do Hedge Fund Clones Manage the Real World?

Wallerstein, Erik; Tuchschmid, Nils S.; Zaker, Sassan

doi:10.3905/jai.2010.12.3.037

Cited by 34 publications

(18 citation statements)

References 10 publications

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“…12. According to Wallerstein et al (2010), implementing a sophisticated version of factor analysis should be possible with 6 months of work.…”

Section: Resultsmentioning

confidence: 99%

“…Since their creation, they underperformed significantly their corresponding benchmarks according to standard (naïve) performance metrics (see Heidorn et al, 2010). Worse, they also tend to underperform synthetic benchmarks (or hedge fund 'clones'), which are based on the replication of (non-investable) hedge fund strategies with underlying investable risk factors (see Jaeger and Wagner, 2005;Wallerstein et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Are investable hedge fund indices holding their promise?

Boigner¹,

Gadzinski

2013

J Deriv Hedge Funds

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“…12. According to Wallerstein et al (2010), implementing a sophisticated version of factor analysis should be possible with 6 months of work.…”

Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Are investable hedge fund indices holding their promise?

Boigner¹,

Gadzinski

2013

J Deriv Hedge Funds

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“…Wallerstein, Tuchschmid, and Zaker (2010) investigate a sample of 21 replication products between March 2008 and May 2009, equaling 15 months of return data 7 . Again, most synthetic hedge funds use a factor‐based approach.…”

Section: Theoretical Considerationsmentioning

confidence: 99%

Synthetic hedge funds

2016

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JEL classification: G11 G12 G23We provide evidence on the performance and the replication success of a broad sample of 72 synthetic hedge funds from January 2009 to December 2013. Thereby, we assign the term "synthetic hedge fund" to mutual funds and exchange-traded funds with hedge fund indices as their benchmarks. Replication success is measured through different perspectives from distributional characteristics to risk-adjusted performance. We find an overall significant underperformance of synthetic hedge funds compared to an appropriate benchmark index. Furthermore, mutual funds (associated with active portfolio management) can produce return characteristics closer to hedge fund benchmarks than exchange-traded funds (associated with passive management) can. From a single strategy perspective, we find a picture of heterogeneity. Regarding the market environment, we show larger return differences for unusual market conditions than for regular ones. show how hedge fund returns can be sufficiently modeled with exposures to systematic risk factors.http://dx.

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“…Indeed, in theory, making the case for passive hedge fund replication should not be too difficult if active hedge fund managers can mostly generate beta in alpha clothing. However, as noted by Wallerstein et al (2010), while there may be a consensus in the industry that clones will bring better liquidity and lower fees, it is still debatable whether replication products should serve as a complement in the hedge fund allocation decision or as a replacement. In general, the authors conclude that the $2 billion hedge fund replication business is far from dead.…”

Section: Introductionmentioning

confidence: 99%

Should we give hedge funds clones a chance?

Kooli

Sharma²

2011

Managerial Finance

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Purpose -The purpose of this paper is to examine the possibility of creating hedge funds "clones" using liquid exchange traded instruments. Design/methodology/approach -Authors analyze the performance of fixed weight and extended Kalman filter generated clone portfolios (EKF) for 14 hedge fund strategies from February 2004 to September 2009. EKF approach does not indeed impose any normality constraints on the error terms which allow the filter to find the optimal recursive process by itself. Such models could adjust even faster to sudden shifts in market conditions vs a standard Kalman filter. Findings -For five strategies out of 14, this work finds that EKF clones outperform their corresponding indices. Thus, for certain strategies, the possibility of cloning hedge fund returns is indeed real. Results should be however considered with caution. Practical implications -This paper suggests that the most important benefits of clones are to serve as benchmarks and to help investors to better understand the various risk factors that impact hedge fund returns. Originality/value -Rather than using fixed-weight and rolling windows approaches (as Hasanhodzic and Lo), this work considers an extended version of the Kalman filter, a computational algorithm that better captures the time changing dynamics of hedge fund returns. Also, in order to be practical, this research considers investable factors and that the models themselves could not be constant over time.

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How Do Hedge Fund Clones Manage the Real World?

Cited by 34 publications

References 10 publications

Are investable hedge fund indices holding their promise?

Are investable hedge fund indices holding their promise?

Synthetic hedge funds

Should we give hedge funds clones a chance?

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