Investable market neutral hedge fund indices: An examination of whether these indice eliminate market risk?

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

Market neutral hedge funds are attractive portfolio constituents when they eliminate market risk. Is this the case for the relatively new investable market neutral hedge fund indices? Given the significant growth in index investing and the number of investable hedge fund index products, we conduct the first empirical assessment of whether the investable market neutral hedge fund indices exhibit this characteristic.

To make this assessment, we adjust the Four Moment Capital Asset Pricing Model adopting conditional measures of systematic variance, systematic skewness and systematic kurtosis as the regressors. This new model is then used to test whether there is a significant relationship between the investable hedge fund indices and the regressors. Our results support the proposition that the investable market neutral hedge fund indices eliminate market risk. As such, we suggest these indices should be attractive portfolio constituents and may supplant market neutral hedge funds in optimal portfolios. We posit that either the selection criteria or the index construction method adopted by the index provider or both is the driver of this result.
Original languageEnglish
Number of pages15
Publication statusPublished - 2009
EventAccounting and Finance Association of Australia and New Zealand (AFAANZ) 2009 - Adelaide, Adelaide, Australia
Duration: 5 Jul 20097 Jul 2009
http://www.afaanz.org/openconf/2009/openconf.php

Conference

ConferenceAccounting and Finance Association of Australia and New Zealand (AFAANZ) 2009
Abbreviated titleAFAANZ
CountryAustralia
CityAdelaide
Period5/07/097/07/09
Internet address

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Kelly, S., Rajaguru, G., & White, A. (2009). Investable market neutral hedge fund indices: An examination of whether these indice eliminate market risk?. Paper presented at Accounting and Finance Association of Australia and New Zealand (AFAANZ) 2009, Adelaide, Australia.