Schneeweis: Monthly hedge fund data might be leading us astray
| Mar 14th, 2007 | Filed under: Performance, Analytics & Metrics | By: Alpha Male |
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Thomas Schneeweis is an academic. So he views the primary benefits of managed accounts not as operational, but as analytical. He argues that daily and weekly return data (usually only available via a managed account) is superior to the more common monthly data used in the hedge fund industry. Schneeweis tells All About Alpha that monthly data hides all sorts of things from, for example, volatility during the last week of every month, to a high correlation to intra-month shocks. (Ross Miller of SUNY Albany shows the power of daily data in his recent paper on Fidelity Magellan’s uncomfortably high market correlation.)
Since monthly data points are generally in short supply (most hedge funds have been around for less than 100 months), all available data points are usually used to calculate things like beta, volatility and, of course, alpha. But as Schneeweis points out, the composition of the S&P 500 has changed over the past 5 years. So why examine 5 years of hedge fund correlations?
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