Spanning tests for assets with option-like > payoffs: the case of hedge funds

P. Karehnke, Frans de Roon

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We draw on the skewness literature to propose regression-based performance evaluation tests designed for investments with option-like returns. These tests deliver conclusions valid for all risk-averse mean-variance-skewness investors and can better account for non-linearities in returns than option-based factor models. Applied to mutual funds and hedge funds, our tests usually suggest selecting different funds than standard tests, and find that a significant fraction, 11%, of hedge funds add value to investors, whereas this is an insignificant 4% for mutual funds. We also analyze the economic significance of these option-like returns, and their out-of-sample persistence.
Original languageEnglish
JournalManagement Science
Publication statusAccepted/In press - Jun 2019

Keywords

  • hedge funds
  • mutual funds
  • writing options
  • performance evaluation
  • mean-variance-skewness spanning
  • prudence
  • portfolio choice

Fingerprint Dive into the research topics of 'Spanning tests for assets with option-like > payoffs: the case of hedge funds'. Together they form a unique fingerprint.

  • Cite this