THREE NOVEL FACTORS AFFECTING HEDGE FUND RETURNS China

THREE NOVEL FACTORS AFFECTING HEDGE FUND RETURNS China

THREE NOVEL FACTORS AFFECTING HEDGE FUND RETURNS China Derivatives Market Conference (CDMC) May 20, 2016 Suzhou, China L. Mick Swartz (PhD, CAIA) University of Southern California Marshall School of Business Presentation Outline Conceptual Introduction to Three New Ratios Drawdown and Run-up Variables Graphical Illustration L-Ratio as a Liquidity Factor R-Ratio as a Momentum Factor D-Ratio as an Average Downside Risk Factor Fung & Hsieh Seven-Factor Model Data Collection, Model Estimation & Diagnostics Presentation Outline continue Empirical Results Global Macro Strategies Emerging Market Strategies Asia Regional Strategies Equity Hedge Strategies Relative Value Strategies Event Driven Strategies Europe Regional Strategies Final Remarks Conceptual Introduction to Three New Ratios The three new ratios are generated with hedge fund strategys monthly excess return in the numerator, as is the case for traditional asset allocation ratios such as Sharpe ratio. The denominator of these ratios includes risk factors that are considered to be more relevant and vital for hedge fund industry, such as Drawdown, Run-up, and their corresponding magnitude, duration, and velocity, as opposed to Std. Dev., Beta etc. 1) L-Ratio is used as a Liquidity factor, i.e. how long (no. of months) it takes the return of hedge fund to recover from its highest fall as the risk factor 2) R-Ratio is used as a Momentum factor, i.e. how fast the hedge fund return rises from its last drop as the risk factor 3) D-Ratio is used as an Average Drawdown% (Downside Risk) factor, i.e.

the average drawdown% per month as the risk factor Drawdown & Run-up Variables Graphical Illustration L-Ratio as a Liquidity Factor L-Ratio as a Liquidity Factor R-Ratio as a Momentum Factor R-Ratio as a Momentum Factor D-Ratio as an Average Downside Risk Factor D-Ratio as an Average Downside Risk Factor Fung & Hsieh Seven-Factor Model Fung & Hsieh 7-Factor Model Variables*: 1)S&P500: Standard & Poor's 500 stock return. 2)SML: Russell 2000 Small Cap return Russell 1000 Large Cap return 3)T10Y: Month end-to-month end change in the Federal Reserves 10 year constant maturity yield. 4)Credit Spread: month end-to-month end change in the difference between Moodys Baa yield and the Federal Reserves 10 year constant maturity yield. 5)Bd. Opt: return of a portfolio of lookback straddles on bond futures. 6)FX Opt: return of a portfolio of lookback straddles on currency futures. 7)Com. Opt: return of a portfolio of lookback straddles on commodity futures. Note: if 5,6 or 7 are significant, then GARCH should be implemented. * Fung, W., Hsieh, D., 2004. Hedge fund benchmarks: a risk-based approach. Financial Analyst Journal 60(5), 6580. Data Collection, Model Estimation & Diagnostics Data Collection and Variable Construction Monthly return of 55 HFRX hedge fund strategies collected from HFR Inc. Monthly total return of S&P500 index, CRB index, MSCI World index, Russell 2000 index and Russell 1000 growth and value indices (for SML and HML), and other countries market indices, are collected from Global Financial Data. 3-month and 12-month LIBOR rates, U.S. 10-year T-Bond and 3-month TBill, and Moodys Baa Corp. Bond yield for Credit Spread, are collected from Federal Reserve Bank of St. Louis. Statistical variables such as Std. Dev., Skew, excess Kurtosis, Sharpe Ratio, Sortino Ratio, Max. Drawdown percentage, Duration, and Velocity; Max. Run-up percentage, Duration, and Velocity, and new ratios are calculated

and used as independent variables. Data Collection, Model Estimation & Diagnostics Other New Ratios Note: S2 L-Ratio , S6 R-Ratio , S7 D-Ratio Data Collection, Model Estimation & Diagnostics Model Estimation and Diagnostics Hedge fund return models are estimated by Ordinary Least Square (OLS) technique or one of the ARCH family techniques if needed. To generate robust models, each model is tested and corrected for: Stationarity (Augmented Dickey-Fuller Unit Root test, corrected by first differencing), Serial-Correlation (Durbin-Watson test, corrected by first order autoregression term), Multi-Collinearity (Variance Inflation Factor test < 10, corrected by elimination), Conditional Heteroskedasticity (tested and corrected by ARCH, GARCH, or EGARCH modeling). Heteroskedasticity (White test, corrected by NeweyWest HAC estimation). The Akaike information criterion (AIC) and Schwarz information criterion (SIC) are used for the best model selection, with the SIC favored, as an indicator of the parsimony model, if there is a disagreement among these indicators. Global Macro Strategies Empirical Results Macro/CTA Dependent Variable: Macro/CTA return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.003 Intercept 0.002 S&P500

0.01 L-Ratio 0.80* S1 SML 0.10** 0.02* T10Y 0.53 Credit Spread 0.33 Bd. Opt 2.10 FX Opt 0.03 Com. Opt 0.11* Adj. R-squared 8.15% 24.25% Akaike info criterion (AIC) 4.68 5.17 Schwarz info criterion (SIC) 4.55 5.06 Estimation Technique OLS EGARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: Active Trading Dependent Variable: Macro: Active Trading return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient

Intercept 0.005** Intercept 0.008* S&P500 0.002 D-Ratio 0.001* SML 0.10*** T10Y 9.82 Credit Spread 0.08 Bd. Opt 0.01 FX Opt 0.03 Com. Opt 0.06*** Adj. R-squared 5.82% 20.90% Akaike info criterion (AIC) 5.81 6.13 Schwarz info criterion (SIC) 5.62 6.03 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: Commodity Dependent Variable: Macro: Commodity return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable

Coefficient Variable Coefficient Intercept 0.003 Intercept 0.084* S&P500 0.09 R-Ratio 6.98* SML 0.09 CRB 0.12** T10Y 12.90 Max Drawdown% 0.33* S5 Credit Spread 0.60 0.76* Bd. Opt 0.03 D-Ratio 0.002* FX Opt 0.03 Com. Opt 0.17* Adj. R-squared 20.87% 40.28% Akaike info criterion (AIC) 5.12 5.43 Schwarz info criterion (SIC) 4.90 5.30 Estimation Technique OLS OLS

Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: CommodityAgriculture Dependent Variable: Macro: CommodityAgriculture return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.003 Intercept 0.016* S&P500 0.02 R-Ratio 2.81* SML 0.01 CRB 0.12* T10Y 3.33 Kurtosis 0.006* Credit Spread 0.14 Bd. Opt 0.10 FX Opt 0.02 Com. Opt 0.15* Adj. R-squared 6.37% 24.10% Akaike info criterion (AIC) 4.75

5.05 Schwarz info criterion (SIC) 4.56 4.91 Estimation Technique OLS ARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: CommodityEnergy Dependent Variable: Macro: CommodityEnergy return Sample Period: January 2007 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.002 S&P500 0.04 CRB 0.24* SML 0.14 D-Ratio 0.003* T10Y 23.80 L-Ratio 1.23* Credit Spread 0.41 Bd. Opt 2.49 FX Opt 0.17

Com. Opt 0.40* Adj. R-squared 27.68% 47.08% Akaike info criterion (AIC) 4.12 4.47 Schwarz info criterion (SIC) 3.90 4.36 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: CommodityMetals Dependent Variable: Macro: CommodityMetals return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.005 Intercept 0.003 S&P500 0.23 CRB 0.63* SML 0.48** R-Ratio 7.97* T10Y 15.30 Run-up Duration

0.001* Credit Spread 7.26 Drawdown Duration 0.002* Bd. Opt 6.72 FX Opt 0.16 Com. Opt 0.78* Adj. R-squared 34.12% 37.17% Akaike info criterion (AIC) 2.88 2.95 Schwarz info criterion (SIC) 2.69 2.83 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: Currency Dependent Variable: Macro: Currency return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.04* S&P500 0.04

Sortino Ratio 0.08* SML 0.02 D-Ratio 0.001* S4 T10Y 15.53 0.05* Credit Spread 0.13 Bd. Opt 0.28 FX Opt 0.04 Com. Opt 0.02 Adj. R-squared 0.80% 22.30% Akaike info criterion (AIC) 5.76 6.04 Schwarz info criterion (SIC) 5.57 5.94 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: Discretionary Thematic Dependent Variable: Macro: Discretionary Thematic return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable

Coefficient Intercept 0.004 Intercept 0.046* S&P500 0.03 CRB 0.22* SML 0.02 Max Drawdown% 0.15* T10Y 26.71** R-Ratio 8.17* Credit Spread 0.89 L-Ratio 0.47* S5 Bd. Opt 1.11 0.84* FX Opt 0.07 Com. Opt 0.30* Adj. R-squared 36.88% 51.47% Akaike info criterion (AIC) 5.00 5.28 Schwarz info criterion (SIC) 4.81 5.13 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1%

Fama-French Model Variable Coefficient Macro: Multi-Strategy Dependent Variable: Macro: Multi-Strategy return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.0002 Intercept 0.01*** S&P500 0.11* S&P500 0.16* SML 0.01 Run-up Velocity 0.001* T10Y 1.03 Credit Spread 3.15** Bd. Opt 0.68 FX Opt 0.01 Com. Opt 0.08** Adj. R-squared 19.46% 17.94% Akaike info criterion (AIC) 5.54 5.56 Schwarz info criterion (SIC) 5.35 5.49

Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Macro: Systematic Diversified Dependent Variable: Macro: Systematic Diversified return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.005 Intercept 0.03** S&P500 0.20** Sortino Ratio 0.05* SML 0.02 Run-up Velocity 0.003* T10Y 18.15 L-Ratio 0.98* Credit Spread 0.02 S&P500 0.14** Bd. Opt 3.94** FX Opt 0.04 Com. Opt 0.12***

Adj. R-squared 7.00% 19.11% Akaike info criterion (AIC) 4.30 4.47 Schwarz info criterion (SIC) 4.12 4.35 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Emerging Market Strategies Empirical Results Emerging Markets Composite Index Dependent Variable: Emerging Markets Composite Index return Sample Period: January 2006 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.003 Intercept 0.04* Intercept 0.05* MSCI 0.33* MSCI 0.23*

MSCI 0.33* SML 0.13 R-Ratio 6.06* HML (Value Prem.) 0.35* T10Y 0.88 Max Drawdown% 0.10* R-Ratio 6.02* Credit Spread 3.60** Max Drawdown% 0.11* Bd. Opt 0.58 FX Opt 0.18 Com. Opt 0.18* Adj. R-squared 52.61% 49.46% 58.76% Akaike info criterion (AIC) 5.11 5.31 5.28 Schwarz info criterion (SIC) 4.91 5.13 5.15 Estimation Technique OLS GARCH OLS Significance Levels: *** 10% and ** 5% and * 1% Total Emerging Market Index Dependent Variable: Total Emerging Market Index return

Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.02* Intercept 0.03* MSCI 0.36* MSCI 0.45* MSCI 0.44* SML 0.09 Sharpe Ratio 0.01* HML (Value Prem.) 0.25* T10Y 6.45 Kurtosis 0.004* Sharpe Ratio 0.02* Credit Spread 0.88 Kurtosis 0.006* Bd. Opt 0.98 FX Opt 0.03 Com. Opt 0.13*

Adj. R-squared 75.83% 75.19% 78.29% Akaike info criterion (AIC) 5.77 5.92 5.90 Schwarz info criterion (SIC) 5.58 5.78 5.78 Estimation Technique OLS ARCH OLS Significance Levels: *** 10% and ** 5% and * 1% Multi-Emerging Markets Index Dependent Variable: Multi-Emerging Markets Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.001 MSCI 0.51* MSCI 0.43* SML 0.19 D-Ratio 0.001** T10Y 19.60 Credit Spread 1.00

Bd. Opt 1.20 FX Opt 0.20 Com. Opt 0.18* Adj. R-squared 71.89% 66.67% Akaike info criterion (AIC) 5.23 5.32 Schwarz info criterion (SIC) 5.04 5.18 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Intercept 0.02* MSCI 0.51* HML (Value Prem.) 0.39* Sortino Ratio 0.02* Max Drawdown% 0.09* Max Run-up% 0.03* 75.99% 5.40 5.26 OLS Asia ex-Japan Index Dependent Variable: Asia ex-Japan Index return Sample Period: January 2004 December 2014

FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.001 MSCI 0.32* MSCI 0.46* S3 SML 0.04 3.26* T10Y 2.90 AR(1) 0.30* Credit Spread 2.85 Bd. Opt 1.24 FX Opt 0.03 Com. Opt 0.19* Adj. R-squared 42.69% 55.16% Akaike info criterion (AIC) 4.48 4.90 Schwarz info criterion (SIC) 4.28 4.72 Estimation Technique OLS EGARCH Significance Levels: *** 10% and ** 5% and * 1%

Fama-French Model Variable Coefficient Intercept 0.005 MSCI 0.46* S3 4.18* HML (Value Prem.) 0.26* AR(1) 0.29* 56.19% 4.89 4.71 GARCH Brazil Index Dependent Variable: Brazil Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.004 Intercept 0.0004 BOVESPA 0.40* BOVESPA 0.48* SML 0.07 T10Y 15.25 Credit Spread 1.80

Bd. Opt 0.46 FX Opt 0.11 Com. Opt 0.11*** Adj. R-squared 63.60% 61.51% Akaike info criterion (AIC) 4.57 4.56 Schwarz info criterion (SIC) 4.38 4.52 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient BRIC Index Dependent Variable: BRIC Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.15* Intercept 0.15* MSCI 0.71*

MSCI 0.68* MSCI 0.69* S1 S1 SML 0.11 0.02* 0.02* T10Y 0.82 Std. Dev. 3.04* HML (Value Prem.) 0.33* Credit Spread 3.20 L-Ratio 0.45* Std. Dev. 2.96* S4 Bd. Opt 0.57 0.03* L-Ratio 0.49* S4 FX Opt 0.22 0.03* Com. Opt 0.17* Adj. R-squared 68.82% 79.58% 81.53% Akaike info criterion (AIC) 4.48 4.98 5.03 Schwarz info criterion (SIC) 4.27

4.74 4.86 Estimation Technique OLS EGARCH OLS Significance Levels: *** 10% and ** 5% and * 1% China Index Dependent Variable: China Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.002 Intercept 0.001 Shanghai Comp 0.18* Shanghai Comp 0.14* Shanghai Comp 0.13* SML D-Ratio 0.17 D-Ratio 0.01* 0.01* T10Y 1.98 Sharpe Ratio 0.04* R-Ratio

8.19* Credit Spread 4.97** R-Ratio 8.93* Sharpe Ratio 0.03* Bd. Opt 1.83 HML (Value Prem.) 0.29* FX Opt 0.15 SML (Size Prem.) 0.19** Com. Opt 0.16** Adj. R-squared 44.71% 57.62% 60.36% Akaike info criterion (AIC) 4.37 4.66 4.71 Schwarz info criterion (SIC) 4.18 4.54 4.54 Estimation Technique OLS OLS OLS Significance Levels: *** 10% and ** 5% and * 1% India Index Dependent Variable: India Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient

Intercept 0.005 Intercept 0.0003 Nifty 0.79* Nifty 0.80* SML 0.27** D-Ratio 0.009* T10Y 37.97 Credit Spread 2.71 Bd. Opt 1.03 FX Opt 0.56* Com. Opt 0.12 Adj. R-squared 78.41% 77.16% Akaike info criterion (AIC) 4.03 4.01 Schwarz info criterion (SIC) 3.84 3.94 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Korea Index Dependent Variable: Korea Index return Sample Period: January 2008 December 2014 FH 7-Factor Model

CAPM Model Variable Coefficient Variable Coefficient Intercept 0.006 Intercept 0.0004 KOSPI 0.54* KOSPI 0.67* SML 0.20 T10Y 22.20 Credit Spread 3.56 Bd. Opt 5.63* FX Opt 0.58* Com. Opt 0.002 Adj. R-squared 73.75% 62.47% Akaike info criterion (AIC) 4.46 4.16 Schwarz info criterion (SIC) 4.23 4.10 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Latin America Index

Dependent Variable: Latin America Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.0001 Intercept 0.004 MSCI 0.40* MSCI 0.47* SML 0.08 D-Ratio 0.002* T10Y 0.31 AR(1) 0.26* Credit Spread 2.38 Bd. Opt 1.44 FX Opt 0.05 Com. Opt 0.16* Adj. R-squared 63.46% 61.67% Akaike info criterion (AIC) 5.07 5.06 Schwarz info criterion (SIC) 4.85 4.96 Estimation Technique OLS

OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient MENA (Middle East/North Africa) Index Dependent Variable: MENA Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.003 Intercept 0.001 MSCI 0.50* MSCI 0.55* SML 0.03 D-Ratio 0.001* T10Y 28.02** Credit Spread 1.79 Bd. Opt 1.21 FX Opt 0.13 Com. Opt 0.11* Adj. R-squared 76.04% 71.35% Akaike info criterion (AIC) 5.36 5.22

Schwarz info criterion (SIC) 5.17 5.15 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Russia Index Dependent Variable: Russia Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.005 Intercept 0.007*** Intercept 0.002 MICEX 0.51* MICEX 0.57* MICEX 0.57* SML 0.02 Sharpe Ratio 0.03* HML (Value Prem.) 0.29** T10Y 23.35 R-Ratio

4.56* D-Ratio 0.01* Credit Spread 1.96 AR(1) 0.38* Bd. Opt 0.05 FX Opt 0.30* Com. Opt 0.09 Adj. R-squared 79.88% 78.91% 79.10% Akaike info criterion (AIC) 4.37 4.50 4.49 Schwarz info criterion (SIC) 4.16 4.31 4.30 Estimation Technique OLS GARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% Russia/Eastern Europe Index Dependent Variable: Russia/Eastern Europe Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.007 Intercept

0.03* MSCI 0.52* MSCI 0.61* SML 0.08 R-Ratio 9.69* T10Y 20.08 L-Ratio 0.58* Credit Spread 4.13 Bd. Opt 1.09 FX Opt 0.01 Com. Opt 0.14*** Adj. R-squared 58.37% 67.10% Akaike info criterion (AIC) 4.23 4.51 Schwarz info criterion (SIC) 4.02 4.42 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Asia Regional Strategies Empirical Results Asia Composite Hedge Fund Index

Dependent Variable: Asia Composite Hedge Fund Index return Sample Period: January 2004 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.0003 Intercept 0.003 Intercept 0.005** MSCI 0.37* MSCI 0.36* MSCI 0.34* SML 0.03 R-Ratio 1.44** R-Ratio 1.91* T10Y 14.04 HML (Value Prem.) 0.15** Credit Spread 2.06 Bd. Opt 0.12 FX Opt 0.16** Com. Opt 0.06 Adj. R-squared 52.57% 52.05%

54.50% Akaike info criterion (AIC) 5.39 5.57 5.55 Schwarz info criterion (SIC) 5.19 5.41 5.40 Estimation Technique OLS EGARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% Asia Equally Weighted Index Dependent Variable: Asia Equally Weighted Index return Sample Period: January 2004 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.005*** MSCI 0.37* MSCI 0.35* SML 0.03 D-Ratio 0.001* T10Y 14.90 Credit Spread 1.63 Bd. Opt 0.07 FX Opt

0.16*** Com. Opt 0.05 Adj. R-squared 50.74% 50.93% Akaike info criterion (AIC) 5.37 5.58 Schwarz info criterion (SIC) 5.17 5.43 Estimation Technique OLS EGARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Asia with Japan Index Dependent Variable: Asia with Japan Index return Sample Period: January 2004 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.007** MSCI 0.26* MSCI 0.30* SML 0.04 R-Ratio 2.81* T10Y 8.28

Kurtosis 0.006* Credit Spread 2.13 Bd. Opt 0.05 FX Opt 0.11 Com. Opt 0.08** Adj. R-squared 34.64% 36.41% Akaike info criterion (AIC) 5.20 5.54 Schwarz info criterion (SIC) 5.00 5.36 Estimation Technique OLS EGARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Japan Index Dependent Variable: Japan Index return Sample Period: January 2004 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.003** TOPIX 0.37* TOPIX

0.36* SML 0.02 T10Y 26.87* Credit Spread 0.40 Bd. Opt 1.44 FX Opt 0.04 Com. Opt 0.03 Adj. R-squared 64.12% 62.73% Akaike info criterion (AIC) 5.56 5.57 Schwarz info criterion (SIC) 5.38 5.53 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Equity Hedge Strategies Empirical Results Equity Hedge Dependent Variable: Equity Hedge return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable

Coefficient Variable Coefficient Intercept 0.003 Intercept 0.01* Intercept 0.008* S&P500 0.30* S&P500 0.35* S&P500 0.32* SML 0.16* R-Ratio 3.71* R-Ratio 2.61* T10Y 15.48** Skew 0.006* SML (Size Prem.) 0.16* Credit Spread 0.16 L-Ratio 0.28* Skew 0.007* Bd. Opt 1.68** FX Opt 0.04 Com. Opt 0.10* Adj. R-squared 57.34% 55.24% 59.63%

Akaike info criterion (AIC) 5.46 5.62 5.70 Schwarz info criterion (SIC) 5.31 5.49 5.57 Estimation Technique OLS GARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% EH: Energy/Basic Materials Dependent Variable: EH: Energy/Basic Materials return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.12* S&P500 0.21* S&P500 0.39* SML 0.09 Drawdown Velocity 0.001* T10Y 26.34 Run-up Velocity 0.002* Credit Spread 2.98 Bd. Opt 1.43

FX Opt 0.03 Com. Opt 0.35* Adj. R-squared 60.38% 50.43% Akaike info criterion (AIC) 4.65 4.59 Schwarz info criterion (SIC) 4.46 4.45 Estimation Technique OLS ARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient EH: Equity Market Neutral Dependent Variable: EH: Equity Market Neutral return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.003 Intercept 0.02* Intercept 0.0008 S&P500 0.02 Max Run-up% 0.05*

SML (Size Prem.) 0.06** S1 SML 0.05** 0.003* AR(1) 0.21* T10Y 1.96 L-Ratio 2.13* Credit Spread 1.36 Bd. Opt 0.13 FX Opt 0.03 Com. Opt 0.01 Adj. R-squared 5.10% 7.27% 6.20% Akaike info criterion (AIC) 6.16 6.27 6.20 Schwarz info criterion (SIC) 6.01 6.13 6.15 Estimation Technique OLS EGARCH OLS Significance Levels: *** 10% and ** 5% and * 1% EH: Fundamental Growth Dependent Variable: EH: Fundamental Growth return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model

Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.005 Intercept 0.009* Intercept 0.01* S&P500 0.26* S&P500 0.39* S&P500 0.40* SML 0.01 D-Ratio 0.002* D-Ratio 0.001* T10Y 5.57 HML (Value Prem.) 0.39* S4 Credit Spread 1.0 0.02* Bd. Opt 1.21 FX Opt 0.04 Com. Opt 0.16* Adj. R-squared 38.14% 43.53% 50.29% Akaike info criterion (AIC) 4.61

4.79 4.85 Schwarz info criterion (SIC) 4.42 4.67 4.73 Estimation Technique OLS ARCH OLS Significance Levels: *** 10% and ** 5% and * 1% EH: Fundamental Value Dependent Variable: EH: Fundamental Value return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.0001 Intercept -0.004*** Intercept 0.004** S&P500 S&P500 S&P500 0.32* 0.38* 0.39* S1 S1 SML 0.02 0.006* 0.006* T10Y

27.44* AR(1) 0.23** HML (Value Prem.) 0.17** Credit Spread 0.04 AR(1) 0.23** Bd. Opt 0.22 FX Opt 0.07 Com. Opt 0.12* Adj. R-squared 62.95% 59.33% 60.62% Akaike info criterion (AIC) 5.60 5.54 5.56 Schwarz info criterion (SIC) 5.41 5.44 5.44 Estimation Technique OLS OLS OLS Significance Levels: *** 10% and ** 5% and * 1% EH: Multi-Strategy Dependent Variable: EH: Multi-Strategy return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable

Coefficient Intercept 0.004 Intercept 0.002 Intercept 0.001 S&P500 0.40* S&P500 0.55* S&P500 0.53 S1 S1 SML 0.23* 0.005* 0.005 T10Y 7.28 SML (Size Prem.) 0.24 Credit Spread 0.50 Bd. Opt 3.39** FX Opt 0.13 Com. Opt 0.12** Adj. R-squared 69.04% 61.77% 64.20% Akaike info criterion (AIC) 5.04 5.01 5.07 Schwarz info criterion (SIC) 4.85 4.87 4.90

Estimation Technique OLS GARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% EH: Quantitative Directional Dependent Variable: EH: Quantitative Directional return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.008** Intercept 0.09* S&P500 0.14* S&P500 0.20* SML 0.15** Max Run-up% 0.09* T10Y 6.53 Drawdown Velocity 0.001* S3 Credit Spread 2.65*** 5.66* Bd. Opt 0.91 Std. Dev. 2.98* FX Opt 0.07 Com. Opt 0.07

Adj. R-squared 24.23% 39.00% Akaike info criterion (AIC) 5.31 5.54 Schwarz info criterion (SIC) 5.12 5.40 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient EH: Short Bias Dependent Variable: EH: Short Bias return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.02* Intercept 0.005** S&P500 S&P500 0.56* S&P500 0.62* 0.51* SML SML

0.46* Run-up Duration 0.002* 0.48* T10Y 4.51 Max Drawdown% 0.08* Drawdown Velocity 0.0003* Credit Spread 2.12 Sharpe Ratio 0.02* Bd. Opt 0.16 FX Opt 0.06 Com. Opt 0.01 Adj. R-squared 77.06% 69.41% 78.83% Akaike info criterion (AIC) 5.38 5.29 5.49 Schwarz info criterion (SIC) 5.19 5.13 5.40 Estimation Technique OLS ARCH OLS Significance Levels: *** 10% and ** 5% and * 1% EH: Technology/Healthcare Dependent Variable: EH: Technology/Healthcare return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model

Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.007** Intercept 0.07* Intercept 0.02*** S&P500 0.26* S&P500 0.33* S&P500 0.29* SML 0.11 Sortino Ratio 0.03* HML (Value Prem.) 0.29* S4 T10Y 15.18 0.03* Sortino Ratio 0.01* Credit Spread 0.66 Kurtosis 0.008* Run-up Velocity 0.001** Bd. Opt 0.03 Std. Dev. 3.23* SML (Size Prem.) 0.20* FX Opt 0.05

Com. Opt 0.02 Adj. R-squared 39.26% 45.46% 52.39% Akaike info criterion (AIC) 5.37 5.66 5.69 Schwarz info criterion (SIC) 5.18 5.45 5.48 Estimation Technique OLS GARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% Relative Value Strategies Empirical Results Relative Value Arbitrage Dependent Variable: Relative Value Arbitrage return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.007 Intercept 0.003 S&P500 0.09* S&P500 0.10* SML 0.02

R-Ratio 1.79* T10Y 11.45*** AR(1) 0.46* Credit Spread 2.74 Bd. Opt 0.48 FX Opt 0.03 Com. Opt 0.08* Adj. R-squared 47.55% 42.86% Akaike info criterion (AIC) 5.59 6.08 Schwarz info criterion (SIC) 5.45 5.97 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Energy Infrastructure Dependent Variable: RV: Energy Infrastructure return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient

Intercept 0.009** Intercept 0.10* Intercept 0.01 S&P500 0.30* S&P500 0.38* S&P500 0.39* SML 0.12 R-Ratio 6.73* HML (Value Prem.) 0.47* T10Y 7.66 Std. Dev. 2.56* R-Ratio 5.14* Credit Spread 0.03 Drawdown Velocity 0.001* Bd. Opt 2.54 Max Drawdown% 0.10* FX Opt 0.16 Com. Opt 0.24* Adj. R-squared 49.15% 41.90% 48.45% Akaike info criterion (AIC) 4.76 4.66 4.76

Schwarz info criterion (SIC) 4.57 4.57 4.62 Estimation Technique OLS OLS OLS Significance Levels: *** 10% and ** 5% and * 1% RV: Fixed IncomeAsset Backed Dependent Variable: RV: Fixed IncomeAsset Backed return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.009* Intercept 0.02* S&P500 0.08* Drawdown Duration 0.004* SML 0.03 S&P500 0.05* S4 T10Y 0.21 0.15* Credit Spread 0.97 AR(1) 0.37* Bd. Opt 0.13 FX Opt 0.11**

Com. Opt 0.06** Adj. R-squared 30.48% 41.46% Akaike info criterion (AIC) 6.49 6.70 Schwarz info criterion (SIC) 6.25 6.56 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Fixed IncomeConvertible Arbitrage Dependent Variable: RV: Fixed IncomeConvertible Arbitrage return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.01 Intercept 0.001 S&P500 0.12* S&P500 0.06* SML 0.01 R-Ratio 3.93* T10Y 13.58*** AR(1)

0.77* Credit Spread 7.68 Bd. Opt 0.50 FX Opt 0.09 Com. Opt 0.14* Adj. R-squared 43.37% 37.50% Akaike info criterion (AIC) 4.53 5.65 Schwarz info criterion (SIC) 4.38 5.54 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Fixed IncomeCorporate Dependent Variable: RV: Fixed IncomeCorporate return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.008** Intercept 0.004* S&P500 0.17* S&P500 0.19*

SML 0.002 T10Y 9.25 Credit Spread 3.11*** Bd. Opt 0.42 FX Opt 0.11*** Com. Opt 0.12* Adj. R-squared 54.45% 45.25% Akaike info criterion (AIC) 5.84 6.12 Schwarz info criterion (SIC) 5.62 5.98 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Fixed IncomeSovereign Dependent Variable: RV: Fixed IncomeSovereign return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.003 S&P500

0.22* S&P500 0.23* SML 0.04 R-Ratio 0.91** T10Y 1.73 Credit Spread 1.87 Bd. Opt 1.93 FX Opt 0.19*** Com. Opt 0.22* Adj. R-squared 38.07% 27.32% Akaike info criterion (AIC) 5.15 5.66 Schwarz info criterion (SIC) 4.96 5.52 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Multi-Strategy Dependent Variable: RV: Multi-Strategy return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient

Intercept 0.002 Intercept 0.02* S&P500 0.13* S&P500 0.18* SML 0.001 Max Run-up% 0.06* T10Y 4.62 Drawdown Duration 0.001* Credit Spread 1.50 Bd. Opt 0.80 FX Opt 0.004 Com. Opt 0.10* Adj. R-squared 48.15% 46.39% Akaike info criterion (AIC) 5.82 6.33 Schwarz info criterion (SIC) 5.61 6.12 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Real Estate Dependent Variable: RV: Real Estate return

Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.004 Intercept 0.02** Intercept 0.002 S&P500 S&P500 0.29* S&P500 0.31* 0.30* SML SML (Size Prem.) 0.12** 0.18* Max Run-up% 0.11* T10Y 7.90 L-Ratio 0.97** Credit Spread 3.07 Max Drawdown% 0.07* Bd. Opt 0.36 FX Opt 0.09 Com. Opt 0.09* Adj. R-squared 56.83%

54.98% 54.00% Akaike info criterion (AIC) 5.61 5.74 5.68 Schwarz info criterion (SIC) 5.39 5.55 5.52 Estimation Technique OLS GARCH GARCH Significance Levels: *** 10% and ** 5% and * 1% RV: Volatility Dependent Variable: RV: Volatility return Sample Period: January 2004 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.004 Intercept 0.002 S&P500 0.07 D-Ratio 0.001* SML 0.01 L-Ratio 0.28** T10Y 24.73* Credit Spread 0.98 Bd. Opt 0.72

FX Opt 0.07 Com. Opt 0.04 Adj. R-squared 8.05% 10.30% Akaike info criterion (AIC) 5.62 5.70 Schwarz info criterion (SIC) 5.42 5.63 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient RV: Yield Alternative Dependent Variable: RV: Yield Alternative return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.005 Intercept 0.003** S&P500 0.25* S&P500 0.34* S1 SML 0.006 0.01* T10Y

2.40 L-Ratio 0.60* Credit Spread 1.07 Bd. Opt 2.85** FX Opt 0.21*** Com. Opt 0.21* Adj. R-squared 44.62% 42.14% Akaike info criterion (AIC) 4.84 5.23 Schwarz info criterion (SIC) 4.63 5.07 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Event Driven Strategies Empirical Results Event Driven Dependent Variable: Event Driven return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.003

Intercept 0.003** S&P500 0.22* S&P500 0.25* S5 SML 0.14* 0.61* T10Y 18.56* AR(1) 0.33* Credit Spread 0.14 Bd. Opt 0.43 FX Opt 0.06 Com. Opt 0.05** Adj. R-squared 55.92% 49.52% Akaike info criterion (AIC) 5.84 5.80 Schwarz info criterion (SIC) 5.69 5.68 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Intercept 0.02 S&P500 0.24

SML (Size Prem.) 0.17 Max Run-up% 0.01 S5 0.71 Drawdown Velocity 0.001 53.84% 5.93 5.80 ARCH ED: Activist Dependent Variable: ED: Activist return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.006 Intercept 0.003 S&P500 0.60* S&P500 0.74* S4 SML 0.22** 0.02* T10Y 19.95 Credit Spread 5.96* Bd. Opt 0.84 FX Opt 0.05 Com. Opt 0.18*

Adj. R-squared 71.50% 66.37% Akaike info criterion (AIC) 4.74 4.65 Schwarz info criterion (SIC) 4.55 4.50 Estimation Technique OLS GARCH Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient ED: Credit Arbitrage Dependent Variable: ED: Credit Arbitrage return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.004* Intercept 0.006* S&P500 0.10* S&P500 0.11* SML 0.01 Skew 0.01* S5 T10Y 24.10* 0.45** Credit Spread

1.27*** AR(1) 0.31* Bd. Opt 0.16 FX Opt 0.07 Com. Opt 0.03 Adj. R-squared 55.41% 47.10% Akaike info criterion (AIC) 6.84 6.70 Schwarz info criterion (SIC) 6.65 6.58 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient ED: Distressed/Restructuring Dependent Variable: ED: Distressed/Restructuring return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.02* Intercept 0.003 Intercept

0.005*** S&P500 0.14* S&P500 0.16* S&P500 0.17* SML 0.10* R-Ratio 2.06* R-Ratio 1.95* T10Y 8.04 AR(1) 0.34* SML (Size Prem.) 0.09* Credit Spread 8.70* AR(1) 0.39* Bd. Opt 0.57 FX Opt 0.04 Com. Opt 0.06** Adj. R-squared 44.77% 36.69% 38.75% Akaike info criterion (AIC) 5.48 5.52 5.59 Schwarz info criterion (SIC) 5.33 5.40 5.44 Estimation Technique OLS

GARCH EGARCH Significance Levels: *** 10% and ** 5% and * 1% ED: Merger Arbitrage Dependent Variable: ED: Merger Arbitrage return Sample Period: January 1998 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.001 Intercept 0.006* Intercept 0.006* S&P500 0.09* S&P500 0.09* S&P500 0.09* S5 S5 SML 0.05* 4.93* 4.85* S3 S3 T10Y 7.37 5.91** 6.23* Credit Spread 1.88** SML (Size Prem.) 0.04**

Bd. Opt 0.85*** FX Opt 0.008 Com. Opt 0.03** Adj. R-squared 23.27% 30.65% 31.98% Akaike info criterion (AIC) 6.57 6.69 6.70 Schwarz info criterion (SIC) 6.44 6.62 6.62 Estimation Technique OLS OLS OLS Significance Levels: *** 10% and ** 5% and * 1% ED: Multi-Strategy Dependent Variable: ED: Multi-Strategy return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.002 Intercept 0.004 Intercept 0.005** S&P500

0.33* S&P500 0.37* S&P500 0.39* S5 S5 SML 0.14 2.01* 2.18* T10Y 30.70** HML (Value Prem.) 0.26** Credit Spread 0.80 Bd. Opt 1.59 FX Opt 0.14 Com. Opt 0.18* Adj. R-squared 46.48% 43.48% 45.92% Akaike info criterion (AIC) 4.96 4.94 4.98 Schwarz info criterion (SIC) 4.77 4.87 4.88 Estimation Technique OLS OLS OLS Significance Levels: *** 10% and ** 5% and * 1% ED: Special Situations Dependent Variable: ED: Special Situations return Sample Period: January 2005 December 2014

FH 7-Factor Model CAPM Model Fama-French Model Variable Coefficient Variable Coefficient Variable Coefficient Intercept 0.0004 Intercept 0.002 Intercept 0.001 S&P500 0.29* S&P500 0.32* S&P500 0.32* S1 SML 0.02 0.007* HML (Value Prem.) 0.31* S1 T10Y 21.85** AR(1) 0.32* 0.007* Credit Spread 0.58 AR(1) 0.27** Bd. Opt 1.06 FX Opt 0.15** Com. Opt 0.12* Adj. R-squared

57.64% 53.53% 59.09% Akaike info criterion (AIC) 5.54 5.49 5.68 Schwarz info criterion (SIC) 5.33 5.39 5.51 Estimation Technique OLS OLS ARCH Significance Levels: *** 10% and ** 5% and * 1% Europe Regional Strategies Empirical Results Western/Pan Europe Index Dependent Variable: Western/Pan Europe Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.006 Intercept 0.03* MSCI 0.32* MSCI 0.20* SML 0.13*** R-Ratio 8.73* T10Y

8.85 Max Drawdown% 0.26* Credit Spread 1.21 L-Ratio 0.42* Bd. Opt 0.27 Max Run-up% 0.06* FX Opt 0.31* Com. Opt 0.06 Adj. R-squared 39.66% 57.24% Akaike info criterion (AIC) 5.25 5.62 Schwarz info criterion (SIC) 5.04 5.48 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Northern Europe Index Dependent Variable: Northern Europe Index return Sample Period: January 2005 December 2014 FH 7-Factor Model CAPM Model Variable Coefficient Variable Coefficient Intercept 0.0003

Intercept 0.003* MSCI 0.18* MSCI 0.12* SML 0.003 T10Y 7.68 Credit Spread 1.62 Bd. Opt 0.79 FX Opt 0.30* Com. Opt 0.06*** Adj. R-squared 28.46% 17.73% Akaike info criterion (AIC) 6.03 5.94 Schwarz info criterion (SIC) 5.84 5.89 Estimation Technique OLS OLS Significance Levels: *** 10% and ** 5% and * 1% Fama-French Model Variable Coefficient Final Remarks 55 HFRX categories of hedge fund returns are analyzed. Three new factors (DRatio, L-Ratio, and R-Ratio) are introduced as better risk measures for hedge fund categories than traditional factors. The three new factors are dominant in the Macro category, the Relative Value category, the Emerging Market category, and the Asia regional categories (at least one of these variables is significant in 74% of these models). These three variables are not as dominant in the Equity Hedge category (33%) or the Event Driven category (14%).

L-Ratio is significant in 12 of 55 categories (21.8%). R-Ratio is significant in 17 of 55 categories (30.9%). D-Ratio is significant in 13 of 55 categories (23.6%). The Sharpe and Sortino ratios are only significant in 4-7 categories of the 55 hedge fund groups.

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