Hedge Fund Replication

Hardcover | December 15, 2011

EditorGreg N. Gregoriou, Maher Kooli

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The popular academic conception that hedge fund returns are simply beta in alpha clothing is an important case for passive replication of hedge fund returns. If much of the returns of hedge funds are not true alpha but rather beta, it could make more sense to replicate them rather than to invest directly in hedge funds. Furthermore, with many hedge fund managers now requiring longer lock-up periods, hedge fund clones have also been marketed as a more liquid alternative or as a temporary investment in a passively managed hedge fund until a suitable fund manager can be found. In addition to lower fees and ease of trading, hedge fund clones also offer transparency. Investors generally know what is inside a clone's portfolio, whereas traditional hedge funds are considered as black box. However, while there may be a consensus in the industry that hedge funds clones will bring better liquidity and lower fees, it is still debatable whether replication products should serve as a complement in the hedge fund allocation decision or as a replacement. Many financial experts also consider hedge fund clones as unproven and risky for investors.

The hedge fund clone industry remains very much in the embryonic stage and more academic research is needed in order for the market to gain more confidence in such products. Interestingly, hedge fund clones while heterogeneous in nature have performed relatively well during the recent financial crisis.

This book offers the reader valuable insights into the thinking behind hedge fund replication. It comprises a collection of views and research from specialist practitioners and academics from around the world, to shed light on different issues regarding the construction of hedge fund clones and how we should consider them. It analyzes their pros and cons, and considers the question, "Do they really expand the efficient frontier for investors?"

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From the Publisher

The popular academic conception that hedge fund returns are simply beta in alpha clothing is an important case for passive replication of hedge fund returns. If much of the returns of hedge funds are not true alpha but rather beta, it could make more sense to replicate them rather than to invest directly in hedge funds. Furthermore, wi...

GREG N. GREGORIOU Professor of Finance at State University of New York (Plattsburgh), USA. He has published 43 books, 60 refereed publications in peer-reviewed journals and 20 book chapters since his arrival at SUNY (Plattsburgh) in August 2003.Professor Gregoriou is hedge fund editor and editorial board member for the Journal of Deri...

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Format:HardcoverDimensions:224 pages, 9.3 × 5.62 × 0.78 inPublished:December 15, 2011Publisher:Palgrave MacmillanLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0230336817

ISBN - 13:9780230336810

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Table of Contents

Can We Really 'Clone' Hedge Fund Returns? Further Evidence; M.Kooli&S.Sharma
Hedge Fund Replication: Does Model Combination Help?; J.Teiletche
Factor-Based Hedge Fund Replication with Risk Constraints; R.D.F.Harris&M.Mazibas
Takeover Probabilities and the Opportunities for Hedge Funds and Hedge Fund Replication to Produce Abnormal Gains; A.Ravi, P.Mayall&J.Simpson
Benchmarking of Replicated Hedge Funds; M.D.Wiethuechter&L.Nemeth
Insight - Distributional Hedge Fund Replication via State Contingent Stochastic Dominance; C.H.Glaffig
Non-Parametric Hedge Funds and Replication Indices Performance Analysis: A Robust Directional Application; L.Germain, N.Nalpas&A.Vanhems
Hedge Fund Cloning through State Space Models; R.Savona
Hedge Fund Return Replication via Learning Models; R.McFall Lamm, Jr
Linear Model for Passive Hedge Fund Replication; G.Barone-Adesi&S.Siragusa
Can Hedge Fund-like Returns be Replicated in a Regulated Environment?; I.Markov&N.Tuchschmid
A Factor-based Application to Hedge Fund Replication; M.Rossi&S.L.Rodríguez