Dynamic hedge fund portfolio construction

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Dynamic hedge fund portfolio construction

Please use this identifier to cite or link to this item: http://hdl.handle.net/10036/96440

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Title: Dynamic hedge fund portfolio construction
Author: Harris, Richard D. F.
Mazibas, Murat
Publisher: University of Exeter Business School
Date Issued: 2009-11
URI: http://hdl.handle.net/10036/96440
Links: http://xfi.exeter.ac.uk/workingpapers/0907.pdf
Abstract: In this paper, we provide further evidence on the use of multivariate conditional volatility models in hedge fund risk measurement and portfolio allocation, using monthly hedge fund index return data for the period 1990 to 2009. Building on Giamouridis and Vrontos (2007), we consider a broad set of multivariate GARCH models as well as the simpler exponentially weighted moving average (EWMA) estimator of RiskMetrics (1996). We find that while multivariate GARCH models provide some improvement in portfolio performance over static models, they are generally dominated by the EWMA model. In particular, in addition to providing better risk-adjusted performance, the EWMA model leads to dynamic allocation strategies that have substantially lower turnover and could therefore be expected to involve lower transaction costs. Moreover, we show that these results are robust across low-volatility and high-volatility sub-periods.
Type: Working Paper
Description: Working paper
Keywords: hedge fund returnsfunds of fundsmultivariate conditional volatilityportfolio optimisation
ISSN: 1743-548X


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