The Tactical and Strategic Value of Hedge Fund Strategies: A Cointegration Approach
Journal
Financial Markets and Portfolio Management
ISSN
1555-4961
ISSN-Digital
1555-497X
Type
journal article
Date Issued
2007-12-01
Author(s)
Abstract (De)
This paper analyzes long-term comovements between hedge fund strategies and traditional asset classes using multivariate cointegration methodology. Since cointegrated assets are tied together over the long run, a portfolio consisting of these assets will have lower long-term volatility. Thus, if the presence of cointegration lowers uncertainty, risk-averse investors should prefer assets that are cointegrated. Long-term (passive) investors can benefit from the knowledge of cointegrating relationships, while the built-in error correction mechanism allows active asset managers to anticipate short-run price movements. The empirical results indicate there is a long-run relationship between specific hedge fund strategies and traditional financial assets. Thus, the benefits of different hedge fund strategies are much less than suggested by correlation analysis and portfolio optimization. However, certain strategies combined with specific stock market segments offer portfolio managers adequate diversification potential, especially in the framework of tactical asset allocation.
Language
German
Keywords
Hedge fund strategies - Stock markets - Tactical and strategic asset allocation - Portfolio optimization - Multivariate cointegration analysis - Johansen test
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer
Publisher place
Heidelberg
Volume
21
Number
4
Start page
425
End page
444
Pages
20
Subject(s)
Eprints ID
216343