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Extracting portable alphas from equity long/short hedge funds

Publication ,  Journal Article
Funga, W; Hsieh, DA
January 1, 2005

This paper shows empirically that Equity Long/Short (Equity L/S) hedge funds have significant alpha to both conventional as well as alternative (hedge fund-like) risk factors utilizing hedge fund data from three major data bases. Following the terminology introduced in Fung and Hsieh (2003) Journal of Fixed Income 58, 16–27, we call these Equity alternative alphas (or Equity AAs for short). Equity AAs are extracted from Equity L/S hedge fund returns by first identifying the systematic risk factors inherent in their strategies. Hedging out these systematic risk factors, the resultant AA return series are empirically shown to be independent of systematic risks during normal as well as stressful conditions in asset markets. This provides collaborative evidence that AA returns are portable across conventional asset-class indexes. By modeling the AA return series as GARCH(1,1)–AR(1) processes, it is shown that the unconditional return distributions are normal with time-varying variance free of serial correlations, skewness, and kurtosis. Alpha-enhanced equity alternative are constructed admitting higher mean return, better annual returns, and Sharpe ratios to the S&P 500 index over the sample period 1996–2002.

Duke Scholars

DOI

Publication Date

January 1, 2005

Start / End Page

161 / 180

Related Subject Headings

  • 1502 Banking, Finance and Investment
 

Citation

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Funga, W., & Hsieh, D. A. (2005). Extracting portable alphas from equity long/short hedge funds, 161–180. https://doi.org/10.1142/9789812569448_0008
Funga, W., and D. A. Hsieh. “Extracting portable alphas from equity long/short hedge funds,” January 1, 2005, 161–80. https://doi.org/10.1142/9789812569448_0008.
Funga W, Hsieh DA. Extracting portable alphas from equity long/short hedge funds. 2005 Jan 1;161–80.
Funga, W., and D. A. Hsieh. Extracting portable alphas from equity long/short hedge funds. Jan. 2005, pp. 161–80. Scopus, doi:10.1142/9789812569448_0008.
Funga W, Hsieh DA. Extracting portable alphas from equity long/short hedge funds. 2005 Jan 1;161–180.

DOI

Publication Date

January 1, 2005

Start / End Page

161 / 180

Related Subject Headings

  • 1502 Banking, Finance and Investment