Passive Hedge Fund Replication

Amenc, Noël; Géhin, Walter; Martellini, Lionel; Meyfredi, Jean-Christophe

doi:10.3905/jai.2008.712598

Cited by 37 publications

(3 citation statements)

References 21 publications

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“…It is not surprising then that this approach has become the most widespread. In practice, different strategies have been replicated (Fung and Hsieh, 2002;Agarwal and Naik, 2004;Jaeger and Wagner, 2005;Amenc et al, 2007;Agarwal et al, 2009) and results vary substantially between hedge fund strategies. Table 1 gives an overview of hedge fund replication results based on factor modelling.…”

Section: Investors and Hedge Fund Clonesmentioning

confidence: 98%

Are hedge fund clones attractive financial products for investors?

Jawadi

Khanniche

2011

Applied Economics Letters

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The subprime crisis, which proved devastating for the hedge fund industry, induced significant losses for investors who ploughed into absolute return funds. In such a context, investigating the opacity surrounding the hedge fund industry and its prohibitive fee structure is of real interest as, within the context of the Madoff scandal, there is strong evidence of a reduction in investor confidence. On the other hand, investors are still looking for attractive returns. Hedge fund clones therefore appear to offer a promising solution as they seek to replicate hedge fund returns at lower fees and with more transparency and liquidity.

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Section: Investors and Hedge Fund Clonesmentioning

confidence: 98%

Are hedge fund clones attractive financial products for investors?

Jawadi

Khanniche

2011

Applied Economics Letters

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“…Once these "clones" become broadly recognized, the hedge fund industry will change significantly and more investors will integrate hedge funds into their asset allocation. Amenc and Schröder (2008) conducted recently a survey on investors' views on hedge fund. They find that while the majority of asset managers feel that hedge fund clones offer higher liquidity and lower fees, many continue to remain skeptical about the products themselves.…”

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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“…It should be noted that currently there is skepticism toward replication products by fund managers. In a survey conducted by Amenc and Schroder (2008), the reasons for such skepticism (pp. 17-20) were poor performance (44 per cent), theoretical impossibility of replicating hedge funds (44 per cent), poor transparency (44 per cent) and flaws in the technologies used by existing products (Gupta et al, 2008;Tancar and Viebig, 2008).…”

Section: Hedge Fund Replicationmentioning

confidence: 99%

Can typical households earn hedge fund returns? An analysis of the Eta® replication approach

Chong

Phillips²

2011

J Deriv Hedge Funds

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In this study, we present an extension to the literature on passive hedge fund replication and its applications by introducing the Eta model, and applying it to hedged mutual funds (HMFs) in an attempt to clone their cumulative returns and assessing the skills of fund managers. Although our replication methodology performed reasonably well for HMFs of certain trading strategies, the clones tend to outperform their respective HMFs, which suggest significant managerial influence that compromises fund performance. Finally, with the aid of the Eta model, we constructed a minimum economic risk portfolio, a long-only portfolio comprising exchange traded funds, with quarterly rebalancing, which nevertheless registered higher cumulative returns than funds with access to long/short strategies, leverage and derivatives. This augurs well for a typical household in that it is possible for them to earn hedge fund returns without hedge fund experience or expertise.

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Passive Hedge Fund Replication

Cited by 37 publications

References 21 publications

Are hedge fund clones attractive financial products for investors?

Are hedge fund clones attractive financial products for investors?

Should we give hedge funds clones a chance?

Can typical households earn hedge fund returns? An analysis of the Eta® replication approach

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