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Quantile regression analysis of hedge fund strategies

Meligkotsidou, L and Vrontos, ID and Vrontos, SD (2009) 'Quantile regression analysis of hedge fund strategies.' Journal of Empirical Finance, 16 (2). 264 - 279. ISSN 0927-5398

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Abstract

Extending previous work on hedge fund pricing, this paper introduces the idea of modelling the conditional quantiles of hedge fund returns using a set of risk factors. Quantile regression analysis provides a way of understanding how the relationship between hedge fund returns and risk factors changes across the distribution of conditional returns. We propose a Bayesian approach to model comparison which provides posterior probabilities for different risk factor models that can be used for model averaging. The most relevant risk factors are identified for different quantiles and compared with those obtained for the conditional expectation model. We find differences in factor effects across quantiles of returns, which suggest that the standard conditional mean regression method may not be adequate for uncovering the risk-return characteristics of hedge funds. We explore potential economic impacts of our approach by analysing hedge fund single strategy return series and by constructing style portfolios. © 2008 Elsevier B.V. All rights reserved.

Item Type: Article
Subjects: Q Science > QA Mathematics
Divisions: Faculty of Science and Health > Mathematical Sciences, Department of
Depositing User: Jim Jamieson
Date Deposited: 04 Jul 2013 14:58
Last Modified: 30 Jan 2019 16:16
URI: http://repository.essex.ac.uk/id/eprint/11544

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