Japanese researchers argue there are many ways to skin a kat when it comes to hedge fund cloning
| Apr 19th, 2010 | Filed under: Academic Research, Alternative Beta & Hedge Fund Replication, Today's Post | By: Alpha Male |
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Despite having its 15 minutes of fame a couple of years ago, so-called “hedge fund replication” still seems to capture the imagination of bargain-hunting institutional investors (see related post). Regular readers and students of this labyrinthine field will recall that there are basically three ways to approximate hedge fund index returns using other means: Factor-based (investing in trade-able versions of off-the-shelf passive exposures), rules-based (using trading algorithms to essentially mimic the trading strategy of various classes of hedge fund) and distributional (re-creating the end result of hedge fund indices – their return distributions – without regard to the timing of returns or correlation with the index being replicated). Distributional replication models have so far been based on the dynamic trading of one particular asset – usually a futures contract – as opposed to the choice of underlying assets.
AllAboutAlpha.com contributor Professor Harry Kat and Helder Palaro formerly of the Cass Business School (at the City University of London) are widely credited with giving life to this approach (see original post – search “Kat” in sidebar for more). Nicolas Papageorgiou, Bruno Remillard, and Alexandre Hocquard from HEC Business School in Montreal proposed some modifications to this technique in 2007 (see related post). More…
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