Spanning tests for assets with option-like payo s: the case of hedge funds

Spanning tests for assets with option-like payo s: the case of hedge funds 


Finance Seminar by Paul Karehnke (UNSW Business School (Sydney)) - N1 - 1701 
November 2017, Wednesday 8 (02:00 pm)

 

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We draw on the skewness literature to propose performance evaluation tests which extend the linear factor regression approach and are designed for investments with option-like returns. These tests deliver conclusions valid for all risk-averse mean- variance-skewness investors and are more exible and better able to account for non- linearities in returns than option-based factor models. Applied to mutual funds and hedge funds, our tests usually suggest selecting di erent funds than standard tests, and nd that a signi cant fraction, 11%, of hedge funds add value to investors, whereas this is an insigni cant 4% for mutual funds. We also analyze the economic signi - cance of these option-like returns, their out-of-sample persistence, and their relation to subsequent fund ows.

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