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The applicability of mean-variance analysis and beta-factors in the risk assessment of hedge funds

Thesis (MBA) -- Stellenbosch University, 2007. / ENGLISH ABSTRACT: Hedge funds are amongst the fastest growing types of investment funds, both in tenns of
worldwide assets under management, as well as the number of private and institutional
investors. More recently, analysts and investors focussed their attention on accurately
estimating the inherent risks of hedge funds (e.g, Brooks & Kat, 2001; Fung & Hsieh, 2004).
Past research suggests that the traditional approach of assessing the risks of investment funds
through mean-variance analysis can lead to severe underestimation of left-hand-tail risks for
hedge funds (Amenc, Malaise, Martellini & Vaissie, 2004; Favre & Galeano, 2002; Fung &
Hsieh, 1999). This phenomenon is mainly attributab le to the non-normal distribution of
monthly hedge fund returns around the mean. In addition, it has been found that skewed
return distribution with high excess kurtosis has substantial impact on the rel iability of beta as
a measure of systemic risk in hedge funds (Chan, Getmansky, Haas & Lo, 2005). Other
problems when estimating hedge fund risks arise from serial correlation of time series
(Getmansky, Lo & Makarov, 2003), managerial and survivorship bias (Amin & Kat, 2001 ), as
well as spurious bias when estimating performance from economic time series (Fung &
Hsieh, 2000). The following thesis provides statistical evidence of the limitations of
traditional risk measures when applied to hedge fund investments. It also includes advice on
how to improve the significance of the aforementioned risk measures. In the course of the
mean-variance analysis, the applicability and reliability of Value at Risk as a risk
measurement tool for hedge funds is explored. Furthennore, the reliability and accuracy of
different univariate and multivariate regression models is tested. In the final chapter emphasis
is placed on the possibilities of predicting the inherent risks of single funds from hedge fund
style index performance. This should provide investors and analysts with an introductory
framework for the appropriate risk assessment of hedge funds, considering the unique
structure and dynamics of these alternative investment funds. / AFRIKAANSE OPSOMMING: Skansfondse tel onder die vinnigste groeiende tipes beleggingsfondse in terme van sowel
wereldwye bates onder bestuur as die aantal private en institusionele beleggers. OnJangs het
analiste en beleggers hulle aandag daarop begin toespits om die inherente risiko's verbonde
aan skansfondse akkuraat te bereken (Brooks & Kat. 2001; Fung & Hsieh, 2004). Vroeere
navorsing het daarop gedui dat die tradisioncle benadering om die risiko's verbonde aan
beleggingsfondse deur gemiddeldevariansie-analise te takseer, daartoe kan lei dat
linkerkantse-eindrisiko's verbonde aan skansfondse emstig onderskat word (Fung & Hsieh,
1999; Favre & Galeano, 2002; Amenc. Malaise, Martellini & Vaissie, 2004). Hierdie
verskynsel is hoofsaaklik toe te skryf aan die abnonnale verspreiding van maandeliksc
skansfondsopbrengste rondom die gemiddelde. Boonop is bevind dat skewe verdeling met
hoe kurtose-oorskryding aansienlik inslaan op die betroubaarheid van beta as 'n meting van
sistemiese risiko by skansfondse (Chan. Getmansky. Haas & Lo, 2005). Ander probleme by
die raming van skansfondsrisiko's spruit uit tydreekskorrelasie (Getmansky, Lo & Markov,
2003), bestuurs- en oorlewingsydigheid (Amin & Kat, 2002) en vals sydigheid by die
beraming van prestasie uil die ekonomiese tydsreeks (Fung & Hsieh, 2000). Hierdie tesis gaan
statistiese bewyse lewer van die tradisioncle risikometings se beperkings wanneer dit op
skansfondsbeleggings toegepas word. Verder sal daar raad gegee word oor hoe om die
beduidendheid van die genoemde risikometings te verbeter. In die loop van die
gemiddeldevariansie-analise sal die toepasbaarheid en betroubaarheid van die Waarde onder
Risiko as 'n risikometing vir skansfondse ondersoek word. Voorts sal die betroubaarheid en
akkuraatheid van verskillende ecnvariaat- en meervariaatregressiemodelle getoets word. In
die laaste hoofstuk val die klem op die moontlikheid om die inherente risiko's van
enkelfondse aan die hand van 'n skansfondstipe-indeksprestasie te voorspel. Wat hier volg,
behoort beJeggers en analistc van 'n inleidende raamwerk vir die toepaslike risikotaksering
van skansfondse - met inagneming van die unieke struktuur en dinamika van hierdie
altcmatiewe beleggingsfondse - te voorsien.

Identiferoai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/19812
Date12 1900
CreatorsBoehlandt, Florian
ContributorsSmit, Eon, Stellenbosch University. Faculty of Economic and Management Sciences. Graduate School of Business.
PublisherStellenbosch : Stellenbosch University
Source SetsSouth African National ETD Portal
Languageen_ZA
Detected LanguageUnknown
TypeThesis
RightsStellenbosch University

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