PT  - JOURNAL ARTICLE
AU  - Jan Viebig
AU  - Thorsten Poddig
AU  - Panagiotis Ballis-Papanastasiou
TI  - Regime-Dependent Nonlinear Analysis of<br/> Hedge Funds
AID  - 10.3905/jai.2011.13.4.053
DP  - 2011 Mar 31
TA  - The Journal of Alternative Investments
PG  - 53--72
VI  - 13
IP  - 4
4099  - https://pm-research.com/content/13/4/53.short
4100  - https://pm-research.com/content/13/4/53.full
AB  - In this article, the authors introduce a regime-dependent nonlinear model to explain the nonlinear return and risk characteristics of hedge funds. The explanatory power of their regime-dependent nonlinear model is substantially higher than the explanatory power of simple linear regression models. Instead of applying self-constructed or option-based asset-based style (ABS) factors, the authors use readily observable market factors to attribute the returns of merger arbitrage hedge funds to three common sources of risk. Combining econometric methods for phase identification with regime-switching regressions to build a regime-dependent nonlinear model is shown to be much less time-consuming and less arbitrary in nature than using ABS factor models.TOPICS: Real assets/alternative investments/private equity, statistical methods, options, style investing