This article aims to investigate risk exposure of hedge funds using switching regime beta models. This approach allows to analyze hedge fund tail event behavior and in particular the changes in hedge fund exposure conditional on different states of various risk factors. We find that in the normal state of the market, the exposure to risk factors could be very low but as soon as the market risk ...

We present a general framework for understanding why firms are slow to make major strategic changes in a wide range of empirical settings. We then apply this framework to investigate, more specifically, the relationship between firm age and scope in hedge funds. Our empirical analyses demonstrate that younger hedge funds outperform older hedge funds both before and after the launch of a new fun...

This paper examines liquidity premium focusing on the difference between offshore and onshore hedge funds. Due to tax provisions and regulatory concerns, offshore and onshore hedge funds have different legal structures, which lead to differences in share restrictions such as a lockup provision. We find that offshore investors collect higher illiquidity premium when their investment has the same...

Over the past decade, academic research has identifi ed a number of replication strategies capable of capturing between 40% to 80% of the average return of many popular hedge fund strategies. Investors are beginning to take notice of these replication strategies, especially because of their rule based, transparent features and the fact that they can be executed at low cost. Armed with this alte...

Hedge Funds are considered as one of the portfolio management sectors which shows a fastest growing for the past decade. An optimal Hedge Fund management requires an appropriate risk metrics. The classic CAPM theory and its Ratio Sharpe fail to capture some crucial aspects due to the strong non-Gaussian character of Hedge Funds statistics. A possible way out to this problem while keeping the CA...

This paper documents a new and important cross-sectional determinant of hedge fund returns, their exposures to sentiment risk, measured as beta of fund returns to fluctuations in sentiment proxies. For a large sample of equity-oriented hedge funds, those whose sentiment beta ranks in the top decile subsequently outperform the bottom decile by 0.67% per month, after controlling for fund’s exposu...

Hedge Funds are considered as one of the portfolio management sectors which shows a fastest growing for the past decade. An optimal Hedge Fund management requires a high precision risk evaluation and an appropriate risk metrics. The classic CAPM theory and its Ratio Sharpe fail to capture some crucial aspects due to the strong non-Gaussian character of Hedge Funds statistics. A possible way out...

The returns to hedge funds and other alternative investments are often highly serially correlated. In this paper, we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure and smoothed returns. We propose an econometric model of return smoothing and develop estimators for the smoothing profile as well as a smoothing-adjusted Sharpe r...