Hedge fund replication positive, industry, business, creating, returns

hinsafdar

Anyone have any thoughts, positive or negative, on hedge fund replication strategies, ie. creating a portfolio of securities that has a high correlation to aggregate hedge fund industry returns without the associated fees or lockups? I know JDV built his business around HF replication but has anyone else looked into it?

IAmNeil

stromey Wrote:
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> If your interested check out the Wiley Finance
> book: "Alternative Beta Strategies and Hedge Fund
> Replication" by Lars Jaeger. The book explores
> some of the methodologies of enacting these
> strategies, although be forewarned that your math
> skills have to be higher than those required on
> the CFA exams.

I really enjoyed the book as well. However, the author made a few claims that I are not supported by actual data. For example, he created an index sGFI that supposedly outperforms managed futures. But when I looked at performance of the index in 2007-2008 (period after the book was published), the index was barely flat while managed futures had one of the greatest periods in their history. Data mining comes to mind.

The book is a good starting point but then you have to work with actual data.

NakedPuts00

QuantJock, you're a beast with the book reccos.

__________

"good personality ... or he was known as Lt. Mandingo during his army days."

hw0799

SMIRK Wrote:
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> Anyone have any thoughts, positive or negative, on
> hedge fund replication strategies, ie. creating a
> portfolio of securities that has a high
> correlation to aggregate hedge fund industry
> returns without the associated fees or lockups? I
> know JDV built his business around HF replication
> but has anyone else looked into it?


Check out the FRM curriculum. This topic was heavily covered when I took this test. they give you actual strategies for replication along with real tracking error numbers, ...

torontoanalyst

mo34 Wrote:
> Check out the FRM curriculum. This topic was
> heavily covered when I took this test. they give
> you actual strategies for replication along with
> real tracking error numbers, ...

I haven't looked at FRM curriculum since I passed it. Do they suggest regressing across different factors or strategies? Is it primarily based on Harry Kat's work or they also look at alternative betas?

AndyNZ

maratikus Wrote:
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> mo34 Wrote:
> > Check out the FRM curriculum. This topic was
> > heavily covered when I took this test. they
> give
> > you actual strategies for replication along
> with
> > real tracking error numbers, ...
>
> I haven't looked at FRM curriculum since I passed
> it. Do they suggest regressing across different
> factors or strategies? Is it primarily based on
> Harry Kat's work or they also look at alternative
> betas?

They had two main topics. One was a regression using 6 or 7 independent variables that they claimed ( and demonstrated with an in depth analysis of HF returns over many years) could replicate any HF strategy ( Factors included USD_index, GS_Commodity index, ...). I don't remember the second techniques they used but it involved options and S&P futures.

pimpineasy

I wonder what a replication of Bernie Madoff's reported return stream would come up with?

Machine of your dreams (invent the return stream you'd like), or fraud detector (via a low R-squared)?

yodacaia

The subject is covered by an article in one of the textbook of CAIA Level II 2009. The name of the article is "Passive Hedge Fund Replication:A critical Assessment of Existing Techniques". The conclusion there is generally negative, if I remember it correctly.

Liberty Hill, CAIA, CFA

bpdulog

bchadwick Wrote:
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> I wonder what a replication of Bernie Madoff's
> reported return stream would come up with?
>
> Machine of your dreams (invent the return stream
> you'd like), or fraud detector (via a low
> R-squared)?

I know you are joking but I remember seeing an article about such frad detector based on serial correlation.

stockjaguar

bchadwick Wrote:
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> BTW, I'm reading Andrew Lo's book, Hedge Funds: an
> analytic perspective, and it has a big chapter
> devoted to "Hedge Fund Beta Replication."
>
> the rest of the book is good too.

Is this worth buying? Is the book easy to read for non-quant types or would I need a geek-to-English translator to comprehend it.