Skip to main content

Hedge Fund Return Predictability in the Presence of Model Risk

Argyropoulos, Christos, Panopoulou, Ekaterini, Voukelatos, Nikolaos, Zheng, Teng (2022) Hedge Fund Return Predictability in the Presence of Model Risk. European Journal of Finance, . ISSN 1351-847X. (doi:10.1080/1351847X.2021.2020146) (KAR id:92303)

PDF Publisher pdf
Language: English


Download (2MB) Preview
[thumbnail of Hedge fund return predictability in the presence of model risk.pdf]
Preview
This file may not be suitable for users of assistive technology.
Request an accessible format
PDF Author's Accepted Manuscript
Language: English

Restricted to Repository staff only
Contact us about this Publication
[thumbnail of Argyropoulos, Panopoulou, Voukelatos & Zheng (2021).pdf]
Official URL
https://doi.org/10.1080/1351847X.2021.2020146

Abstract

Hedge funds implement elaborate investment strategies that include a variety of positions and assets. As a result, there is significant 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 significantly improve the forecasting accuracy of hedge fund returns and consequently the performance of funds of hedge funds.

Item Type: Article
DOI/Identification number: 10.1080/1351847X.2021.2020146
Uncontrolled keywords: Forecasting; Hedge funds; Dynamic model averaging; Model risk; Fund of funds
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Nikolaos Voukelatos
Date Deposited: 13 Dec 2021 18:24 UTC
Last Modified: 23 Mar 2022 12:48 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/92303 (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
  • Depositors only (login required):

Downloads

Downloads per month over past year