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Publication Do alternative UCITS deliver what they promise? A comparison of alternative UCITS and hedge funds

Type

Refereed Article

Year

2014

Author(s)

Michael Busack
Wolfgang Drobetz
Jan Tille

Journal

Applied Financial Economics

Volume

24

Pages

949-965

Research Area

Asset Management, Capital Markets

Keywords

Alternative mutual funds, UCITS funds, Hedge funds, Performance measurement

Abstract

We study the performance of alternative UCITS funds and account for potential survivorship biases in our sample in the best possible manner. Alternative UCITS funds offer similar raw returns but a lower volatility compared to offshore hedge funds. Single-index models show that alternative UCITS funds provide only marginal exposure to variations in hedge fund returns. Multifactor models indicate that the most important risk factors for both alternative UCITS funds and their matched hedge funds strat-egies are related to stock market risks, but alternative UCITS funds exhibit a lower exposure to these factors than hedge funds. Moreover, we find factor loadings on different risk factors, suggesting that alternative UCITS and hedge funds pursue different strategies. Finally, we assess the degree of the value added for an investor in terms of enhanced diversification benefits by implementing a spanning test and find that both groups are different asset classes with time-varying diversification properties.

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