• HFRC Forschung

Detailübersicht

Publication Efficient hedge fund style allocations: A rules-based model

Type

Refereed Article

Year

2012

Author(s)

Wolfgang Drobetz
Dieter Kaiser
Jasper Zimbehl

Journal

Journal of Derivatives and Hedge Funds

Volume

18

Pages

254-300

Research Area

Asset Allocation, Capital Markets

Keywords

Hedge funds, Style allocation, Portfolio optimization

Abstract

The hedge fund literature has predominantly focused on the return and risk characteristics as well as the portfolio properties of different hedge fund styles. However, relatively little is known about how hedge fund investors should allocate their capital across various hedge fund styles. The aim of this study is to develop a rules-based framework that can be used by investors to optimize their hedge fund style allocation. We construct four hedge fund style indices using a sample of 6088 hedge funds from the Lipper TASS Hedge Fund Database over the January 1995–September 2010 time period. We also develop technical and fundamental indicators on the basis of the style return drivers from earlier hedge fund studies. We use these indicators to generate trading recommendations through a style allocation model that systematically over- and underweights the four major hedge fund styles. The empirical results indicate that our hedge fund style allocation model delivers an outperformance of up to 1 per cent per year over an equally weighted portfolio.

Download

Article available here