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Article

Send in the Clones? Hedge Fund Replication Using Futures Contracts

Nicolas P.B. Bollen and Gregg S. Fisher
The Journal of Alternative Investments Fall 2013, 16 (2) 80-95; DOI: https://doi.org/10.3905/jai.2013.16.2.080
Nicolas P.B. Bollen
is the E. Bronson Ingram Professor of Finance at Owen Graduate School of Management, Vanderbilt University in Nashville, TN.
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  • For correspondence: nick.bollen@owen.vanderbilt.edu
Gregg S. Fisher
is president and CIO of Gerstein Fisher in New York, NY.
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  • For correspondence: gfisher@gersteinfisher.com
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Abstract

Replication products strive to offer investors some of the benefits of hedge funds while avoiding their high fees, illiquidity, and opacity. The authors of this article test whether a replication algorithm can deliver the diversification and high Sharpe ratio that investors seek. Their procedure constructs monthly clone returns out-of-sample using fully collateralized futures positions held for one-month, with position sizes determined using rolling window regressions. Clone returns have high correlation with their hedge fund targets, indicating replication is possible. Clones also have high correlation with a buy-and-hold investment in stocks, however, and neither the targets nor their clones demonstrate successful time variation in factor loadings.

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The Journal of Alternative Investments: 16 (2)
The Journal of Alternative Investments
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Fall 2013
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Send in the Clones? Hedge Fund Replication Using Futures Contracts
Nicolas P.B. Bollen, Gregg S. Fisher
The Journal of Alternative Investments Sep 2013, 16 (2) 80-95; DOI: 10.3905/jai.2013.16.2.080

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Send in the Clones? Hedge Fund Replication Using Futures Contracts
Nicolas P.B. Bollen, Gregg S. Fisher
The Journal of Alternative Investments Sep 2013, 16 (2) 80-95; DOI: 10.3905/jai.2013.16.2.080
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    • Abstract
    • PRELIMINARIES
    • DATA AND EMPIRICAL METHODS
    • REPLICATION PERFORMANCE
    • CONCLUSION
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