Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2014-12-08
Number: 14-151/III
Author-Name: David E. Allen
Author-Workplace-Name: University of Sydney, University of South Australia, Australia
Author-Name: Michael McAleer
Author-Workplace-Name: National Tsing Hua University, Taiwan, Erasmus University Rotterdam, the Netherlands, Complutense University of Madrid, Spain
Author-Name: Shelton Peiris
Author-Workplace-Name: University of Sydney, Australia
Author-Name: Abhay K. Singh
Author-Workplace-Name: Edith Cowan University, Australia
Title: Hedge Fund Portfolio Diversification Strategies across the GFC
Abstract: This paper features an analysis of the effectiveness of a range of portfolio diversication strategies as applied to a set of 17 years of monthly hedge fund index returns on a set of ten market indices representing 13 major hedge fund
categories, as compiled by the EDHEC Risk Institute. The 17-year period runs from the beginning of 1997 to the end of August 2014. The sample period, which incorporates both the Global Financial Crisis (GFC) and subsequent European
Debt Crisis (EDC), is a challenging one for the application of diversication and portfolio investment strategies. The analysis features an examination of the di-
versification benefits of hedge fund investments through successive crisis periods. The connectedness of the Hedge Fund Indices is explored via application of the Diebold and Yilmaz (2009, 2014) spillover index. We conduct a series of portfolio optimisation analyses: comparing Markowitz with naive diversication, and evaluate the relative effectiveness of Markowitz portfolio optimisation with various draw-down strategies, using a series of backtests. Our results suggest that Markowitz optimisation matches the characteristics of these hedge fund indices
quite well.
Classification-JEL: G11, C61
Keywords: Hedge Fund Diversication, Spillover Index, Markowitz Analaysis,
File-Url: https://papers.tinbergen.nl/14151.pdf
File-Format: application/pdf
File-Size: 961730 bytes
Handle: RePEc:tin:wpaper:20140151