Alternative Beta Strategies and Hedge Fund Replication (Wiley Finance)

Alternative Beta Strategies and Hedge Fund Replication......Page 3
Contents......Page 8
Preface......Page 12
1.1 New popularity, old confusion......Page 16
1.2 The challenges of understanding hedge funds......Page 17
1.3 Leaving Alphaville......Page 18
1.5 Alternative versus traditional beta......Page 19
1.6 The replication revolution......Page 20
1.7 Full disclosure......Page 21
2.1 Characteristics of hedge funds......Page 22
2.3 Taxonomy of hedge funds......Page 26
2.4 Myths, misperceptions, and realities about hedge funds......Page 30
2.5 A short history of hedge funds......Page 37
2.6 The hedge fund industry today......Page 41
2.7 The future of hedge funds – opportunities and challenges......Page 45
3.1 Equity Hedged – Long/Short Equity......Page 52
3.2 Equity Hedged – Equity Market Neutral......Page 56
3.3 Equity Hedged – Short Selling......Page 59
3.4 Relative Value – general......Page 60
3.5 Relative Value – Fixed Income Arbitrage......Page 61
3.6 Relative Value – Convertible Arbitrage......Page 66
3.7 Relative Value – Volatility Arbitrage......Page 73
3.8 Relative Value – Capital Structure Arbitrage......Page 75
3.9 Event Driven – general......Page 77
3.10 Event Driven – Merger Arbitrage......Page 79
3.11 Event Driven – Distressed Securities......Page 82
3.12 Event Driven – Regulation D......Page 84
3.13 Opportunistic – Global Macro......Page 85
3.14 Managed Futures......Page 90
3.15 Managed Futures – Systematic......Page 91
3.16 Managed Futures – Discretionary......Page 94
3.17 Conclusion of the chapter......Page 96
4.1 When the Sharpe ratio is not sharp enough......Page 98
4.2 Challenges of hedge fund performance measurement – the issue with hedge fund indices......Page 99
4.3 Sources of empirical data......Page 104
4.4 Risk and return properties of hedge fund strategies......Page 105
4.5 Comparison with equities and bonds......Page 108
4.7 Unconditional correlation properties......Page 109
4.8 Conditional returns and correlations......Page 113
4.9 Hedge fund behavior in extreme market situations......Page 120
4.10 Benefits of hedge funds in a traditional portfolio......Page 122
4.11 Quantitative portfolio optimization for hedge funds revisited......Page 124
4.12 Summary of empirical properties......Page 127
4.13 Appendix: Data providers for past hedge fund performance......Page 128
5.1 Alpha versus beta......Page 132
5.2 The enigma of hedge fund returns......Page 134
5.3 Hedge fund returns: how much is alpha?......Page 136
5.4 The efficient market hypothesis......Page 138
5.5 Questioning the efficient market hypothesis: behavioral finance......Page 140
5.6 The theoretical framework of modern finance: asset pricing models and the interpretations of alpha......Page 143
5.7 Systematic risk premia: the prevalence of beta in the global capital markets......Page 146
5.8 Risk premia and economic functions......Page 153
5.9 Market inefficiencies: the ‘search for alpha’......Page 155
5.10 An illustration of the nature of hedge fund returns......Page 158
5.11 The decrease of alpha......Page 160
5.12 The beauty of alternative beta......Page 162
5.13 The future of hedge fund capacity......Page 164
5.14 Momentum and value......Page 165
5.15 Active strategies and option-like returns......Page 167
5.16 Why manager skill matters......Page 169
5.17 Buyer beware: some final words of caution about hedge fund returns......Page 170
6.1 Revisiting Sharpe’s approach......Page 172
6.2 Understanding linear factor analysis: criteria for the factor model approach......Page 173
6.3 The model specification problem......Page 174
6.4 The data quality problem......Page 175
6.6 Basic and advanced factor models for hedge fund strategies......Page 176
6.7 How good are our models?......Page 180
6.8 Variability of risk exposures and persistence of factor loadings......Page 181
6.9 Can we create hedge fund replications with linear factor models?......Page 183
6.10 The limitations of linear factor models......Page 191
6.11 Currently available hedge fund replication products based on RFS......Page 193
6.12 Summary and conclusion of the chapter......Page 195
7.1 Being less ambitious......Page 198
7.2 General principles of the distributional approach......Page 199
7.3 Integration of correlations and dependencies......Page 201
7.5 The empirical results of the distributional method......Page 202
7.6 Conclusion for the distributional approach......Page 203
8.1 The rule-based alternative......Page 206
8.2 What hedge fund investors really want......Page 208
8.3 The first ‘alternative beta’ strategies......Page 209
8.4 Relating hedge fund returns and risk premia: what we can model......Page 211
8.5 Alternative beta strategies for individual hedge fund styles and strategy sectors......Page 212
8.6 New exotic beta......Page 223
8.7 The question of asset allocation......Page 224
8.9 A note on the issue of liquidity......Page 225
8.10 Summary......Page 226
9.1 The tasks of the hedge fund portfolio manager......Page 228
9.2 The lure of saving fees......Page 229
9.3 The limitations of hedge fund replication......Page 230
9.5 Separation of tasks for the fund of funds managers......Page 231
9.6 The idea of a core–satellite approach to hedge fund investing......Page 232
9.8 The first part in the investment process: allocation to strategy sectors......Page 233
9.9 Implementation of tactical asset allocation in a core–satellite approach to hedge fund portfolios......Page 238
9.10 The second element: manager selection......Page 241
9.11 Active post-investment risk management......Page 246
9.12 Summary and conclusion......Page 253
10.2 What do investors say so far?......Page 254
10.3 Replication and the four key challenges to the hedge fund industry......Page 255
10.4 Replication in reality......Page 256
10.5 Replication and hedge fund growth......Page 257
10.6 Hedge funds in the broader context: The future of absolute return investment......Page 258
References and Bibliography......Page 260
Index......Page 268