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Alexander, Carol and Dimitriu, Anca (2005) Rank alpha funds of hedge funds. Journal of Alternative Investments, 8 (2). pp. 48-61. ISSN 1520-3255
Full text not available from this repository.Abstract
This article examines the performance of hedge fund portfolios when fund selection is based on the rank of a fund's alpha, rather than the estimated value of the alpha. Estimated alphas can vary significantly depending on the model used and hence induce a high degree of model risk in portfolio optimization. The authors find, even for the simplest factor models, that ranking funds according to their alpha estimates is an efficient selection process. In an extensive out-of-sample historical analysis, funds of funds that are selected in this manner are shown to outperform an equally weighted index of all funds, minimum variance portfolios of randomly selected funds and portfolios that are optimized using estimated alpha values. Of the four factor models considered here the best out-of-sample performance is obtained using the rank alphas from the principal components factor model.
| Item Type: | Article |
|---|---|
| Schools and Departments: | University of Sussex Business School > Business and Management |
| Subjects: | H Social Sciences > HG Finance |
| Related URLs: | |
| Depositing User: | Carol Alexander |
| Date Deposited: | 17 Sep 2012 10:35 |
| Last Modified: | 03 Jun 2020 10:42 |
| URI: | http://sro.sussex.ac.uk/id/eprint/40603 |