Spanning tests for assets with option-like > payoffs: The case of hedge funds
Karehnke,P. de Roon,Frans
Karehnke,P.
de Roon,Frans
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.
Description
Date
2020-12
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
hedge funds, mutual funds, writing options, performance evaluation, mean-variance-skewness spanning, prudence, portfolio choice, G10 - General, G11 - Portfolio Choice ; Investment Decisions
Citation
Karehnke, P & de Roon, F 2020, 'Spanning tests for assets with option-like > payoffs: The case of hedge funds', Management Science, vol. 66, no. 12, pp. 5969-5989. https://doi.org/10.1287/mnsc.2019.3429
License
info:eu-repo/semantics/openAccess