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Hedge Fund Return Predictability in the Presence of Model Risk

Argyropoulos, Christos, Panopoulou, Ekaterini, Voukelatos, Nikolaos, Zheng, Teng (2019) Hedge Fund Return Predictability in the Presence of Model Risk. In: 13th International Conference on Computational and Financial Econometrics, 14-16 December 2019, London. (Unpublished) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:79323)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)

Abstract

Hedge funds implement elaborate investment strategies that include a variety of positions and assets. As a result, there is signifcant time variation in the set of risk factors and their respective loadings which in turn introduces severe model risk in any attempt to model and forecast hedge fund returns. In this study, we investigate the statistical and economic value of incorporating heteroscedasticity, non-normality, time-varying parameters, model selection risk and parameter estimation risk jointly in hedge fund return forecasting and fund of funds construction. Parameter estimation risk is dealt with a time-varying parameter structure, while model selection uncertainty is mitigated by model averaging or model selection. We adopt a dynamic model averaging approach along with the conventional Bayesian averaging technique. Our empirical results suggest that accounting for model risk can signifcantly improve the forecasting accuracy of hedge fund returns and, consequently, the performance of funds of hedge funds.

Item Type: Conference or workshop item (Paper)
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School
Depositing User: Nikolaos Voukelatos
Date Deposited: 17 Dec 2019 09:39 UTC
Last Modified: 06 May 2020 03:20 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/79323 (The current URI for this page, for reference purposes)
Panopoulou, Ekaterini: https://orcid.org/0000-0001-5080-9965
Voukelatos, Nikolaos: https://orcid.org/0000-0001-8272-2901
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