Kat rebuts itemized list of criticisms over his approach
| Sep 30th, 2007 | Filed under: Alternative Beta & Hedge Fund Replication | By: Alpha Male |
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At a conference last week, Professor Harry Kat of hedge fund replication fame presented a list of his specific rebuttals to 10 criticisms. He’s since included the audience’s feedback in a new article on distributional replication released this weekend.
Both factor-model and distributional hedge fund replication have attracted a lot of attention over the past year – and both have also been criticized.
Kat’s recent presentation in Geneva was aimed squarely at critics of his distributional approach. After presenting his list of 10 criticisms, some in the audience volunteered a few others. Since last week, Kat has been busy incorporating these additional unjustified criticisms to the existing list. What resulted was a new paper available here.
In descending order, here are Kat’s rebuttals to the top 10 criticisms of his distributional replication approach:
1. Due to the dynamic nature of FundCreator-based trading strategies, transaction costs will dramatically erode returns.
Summary of Kat’s response: Not true, our model explicitly accounts for transaction costs, futures are highly liquid instruments and trades needn’t be made immediately.
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