Frankfurt School of Finance and Management, Frankfurt a. M. >
Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management >
Please use this identifier to cite or link to this item:
| || |
|Title:||The value-added of investable hedge fund indices |
Kaiser, Dieter G.
|Issue Date:||2010 |
|Series/Report no.:||Working paper series // Frankfurt School of Finance & Management 141|
|Abstract:||This paper empirically investigates the risk and performance of three types of alternative beta products over the January 2002 to September 2009 time period: funds of hedge funds (FHFs), investable hedge fund indices (IHFIs), and hedge fund replication strategies (HFRS). We show that IHFIs are true alternative beta products with high correlations and beta to noninvestable hedge fund indices. Our results further suggest that, in a best case scenario, IHFIs outperform FHFs and HFRS on a risk-adjusted basis. However, in the worst case scenario, IHFIs underperform both investments. If we take the average of all IHFIs, we find they perform equally well as FHFs. Hence, IHFIs constitute a solid alternative to FHF investments, while costing substantially less, and offering generally more transparency and liquidity. We propose that fee-sensitive investors especially should consider taking a core-satellite approach to their hedge fund portfolio, with the core represented by cheap passive hedge fund beta through IHFIs, and the satellite represented by more expensive and actively managed alphagenerating FHFs.|
investable hedge fund indices
funds of hedge funds
hedge fund replication
|Document Type:||Working Paper|
|Appears in Collections:||Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management|
Download bibliographical data as:
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.