RT Journal Article
SR Electronic
T1 Regime-Dependent Nonlinear Analysis of<br/> Hedge Funds
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 53
OP 72
DO 10.3905/jai.2011.13.4.053
VO 13
IS 4
A1 Jan Viebig
A1 Thorsten Poddig
A1 Panagiotis Ballis-Papanastasiou
YR 2011
UL https://pm-research.com/content/13/4/53.abstract
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