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- Title
Hedge Funds: 'Do They Do What They Say They Do?' Revisited.
- Authors
Mackey, Scott; Melton, Michael
- Abstract
The main research questions of this paper remain the same: 1) to determine if hedge funds follow their stated strategy styles, and 2) to examine how hedge funds' strategy allocations evolve over time (using a sample of individual Funds of Hedge Funds as a proxy). However, based on recent work we performed the results require updating. Overall, we find that the style analysis we adapted from that of Sharpe (1992) may be inadequate for capturing the full range of hedge fund investment styles. This is not necessarily a defect in the methodology, but rather too much subjectivity in style index selection, ineffective style indices, and inadequate database strategy information. Despite these shortcomings we do find evidence that the hedge funds in the sample do appear to change their style allocations in response to prevailing economic and market conditions. More specifically, it appears that hedge funds significantly reduced their allocations to Emerging Markets and Macro styles and increased their exposure to Event Driven and CTA exposure. In addition, on the equity market side, it appears that the hedge funds moved to a more conservative approach by increasing allocations to Equity Market Neutral and Equity Short Selling styles. Finally, we suggest improving our methodology by incorporating Principal Component and Independent Component analyses.
- Subjects
HEDGE funds; MUTUAL funds; INVESTMENTS; MARGIN accounts; EMERGING markets; TRANSITION economies; DEVELOPING countries; SHORT selling (Securities); FOREIGN investments
- Publication
Proceedings of the Northeast Business & Economics Association, 2009, p106
- ISSN
1936-203X
- Publication type
Article