Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091402 | Journal of Banking & Finance | 2007 | 19 Pages |
Abstract
This article studies the impact of modeling time-varying covariances/correlations of hedge fund returns in terms of hedge fund portfolio construction and risk measurement. We use a variety of static and dynamic covariance/correlation prediction models and compare the optimized portfolios' out-of-sample performance. We find that dynamic covariance/correlation models construct portfolios with lower risk and higher out-of-sample risk-adjusted realized return. The tail-risk of the constructed portfolios is also lower. Using a mean-conditional-value-at-risk framework we show that dynamic covariance/correlation models are also successful in constructing portfolios with minimum tail-risk.
Related Topics
Social Sciences and Humanities
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Economics and Econometrics
Authors
Daniel Giamouridis, Ioannis D. Vrontos,