Hedge Fund Performance Evaluation:
نویسندگان
چکیده
We analyze hedge fund performance using the stochastic discount factor (SDF) approach and imposing the arbitrage-free requirement to correctly value the derivatives and dynamic trading strategies used by hedge funds. Using SDFs of many asset-pricing models, we evaluate hedge fund portfolios based on style and characteristics. Without the arbitrage-free requirement, pricing errors are relatively small and a few models can explain hedge fund returns. With this requirement, pricing errors are much bigger, and all models fail to price style and volatility portfolios. Fund manager characteristics like age, experience, and education explain some of the mispricing of our best risk model.
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