A note on statistical models for individual hedge fund returns |
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Authors: | Ryozo Miura Yoshimitsu Aoki Daisuke Yokouchi |
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Institution: | (1) Graduate School of International Corporate Strategy, Hitotsubashi University, 2-1-2 Hitotsubashi, Chiyoda-ku, Tokyo 101-8439, Japan;(2) QUICK Corp., 2-1-1 Nihonbashi Muromachi, Chiyoda-ku, Tokyo 103-8317, Japan |
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Abstract: | In recent years, a large number of research papers and monographs on the analysis of hedge fund returns have been published.
Typically, the authors of these studies implicitly or explicitly treat monthly returns of hedge funds as independent and identically
distributed observations. The Hedge Fund Index might be able to serve that role. But the returns of an individual hedge fund
are not like that. They behave autoregressively depending on the time periods. This stochastic behavior should be modeled
as a combined/regime switching stochastic process of two processes: i.i.d. process and autoregressive process. This paper
first depicts the autoregressiveness of hedge fund returns. Then we introduce our statistical model for returns of an individual
hedge fund and then, with our retrospective view, we perform several data analyses for individual hedge funds’ return data. |
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Keywords: | Hedge fund Return distribution Rolling autoregression Option-like nature Sharpe ratio |
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