Hedge fund replication

Mikhail Tupitsyn, Paul Lajbcygier

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

Abstract

In theory, analogous to equity indices, hedge fund indices can provide broad exposure to hedge funds in a cost-effective manner. In practice, however, hedge fund indices are difficult to implement because direct investment in hedge funds is impractical. Unlike equities, hedge funds are not traded on liquid secondary markets and are often closed to new investment. A solution is hedge fund replication, which, rather than require direct investment in hedge funds, synthetically recreates hedge fund index returns by investing in portfolios that are exposed to the same underlying economic factors that drive hedge fund returns. This approach provides broad, cost-effective, hedge fund exposure and avoids the practical problems associated with direct hedge fund investment. As a consequence, such hedge fund clones exhibit lower tracking error and substantially higher raw and risk-adjusted returns than both investible and noninvestible hedge fund indices.
Original languageEnglish
Title of host publicationHedge Funds
Subtitle of host publicationStructure, Strategies, and Performance
EditorsH. Kent Baker, Greg Filbeck
Place of PublicationOxford UK
PublisherOxford University Press
Chapter25
Pages460-490
Number of pages31
Edition1st
ISBN (Print)9780190607371
DOIs
Publication statusPublished - 2017

Keywords

  • hedge fund replication
  • hedge fund
  • index
  • tracking error
  • hedge fund clone
  • systematic risk
  • non-linear exposures

Cite this

Tupitsyn, M., & Lajbcygier, P. (2017). Hedge fund replication. In H. K. Baker, & G. Filbeck (Eds.), Hedge Funds: Structure, Strategies, and Performance (1st ed., pp. 460-490). Oxford UK: Oxford University Press. https://doi.org/10.1093/oso/9780190607371.003.0025
Tupitsyn, Mikhail ; Lajbcygier, Paul. / Hedge fund replication. Hedge Funds: Structure, Strategies, and Performance. editor / H. Kent Baker ; Greg Filbeck. 1st. ed. Oxford UK : Oxford University Press, 2017. pp. 460-490
@inbook{73eec51b138b464a960723efbb42304b,
title = "Hedge fund replication",
abstract = "In theory, analogous to equity indices, hedge fund indices can provide broad exposure to hedge funds in a cost-effective manner. In practice, however, hedge fund indices are difficult to implement because direct investment in hedge funds is impractical. Unlike equities, hedge funds are not traded on liquid secondary markets and are often closed to new investment. A solution is hedge fund replication, which, rather than require direct investment in hedge funds, synthetically recreates hedge fund index returns by investing in portfolios that are exposed to the same underlying economic factors that drive hedge fund returns. This approach provides broad, cost-effective, hedge fund exposure and avoids the practical problems associated with direct hedge fund investment. As a consequence, such hedge fund clones exhibit lower tracking error and substantially higher raw and risk-adjusted returns than both investible and noninvestible hedge fund indices.",
keywords = "hedge fund replication, hedge fund, index, tracking error, hedge fund clone, systematic risk, non-linear exposures",
author = "Mikhail Tupitsyn and Paul Lajbcygier",
year = "2017",
doi = "10.1093/oso/9780190607371.003.0025",
language = "English",
isbn = "9780190607371",
pages = "460--490",
editor = "Baker, {H. Kent} and Greg Filbeck",
booktitle = "Hedge Funds",
publisher = "Oxford University Press",
address = "United Kingdom",
edition = "1st",

}

Tupitsyn, M & Lajbcygier, P 2017, Hedge fund replication. in HK Baker & G Filbeck (eds), Hedge Funds: Structure, Strategies, and Performance. 1st edn, Oxford University Press, Oxford UK, pp. 460-490. https://doi.org/10.1093/oso/9780190607371.003.0025

Hedge fund replication. / Tupitsyn, Mikhail; Lajbcygier, Paul.

Hedge Funds: Structure, Strategies, and Performance. ed. / H. Kent Baker; Greg Filbeck. 1st. ed. Oxford UK : Oxford University Press, 2017. p. 460-490.

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

TY - CHAP

T1 - Hedge fund replication

AU - Tupitsyn, Mikhail

AU - Lajbcygier, Paul

PY - 2017

Y1 - 2017

N2 - In theory, analogous to equity indices, hedge fund indices can provide broad exposure to hedge funds in a cost-effective manner. In practice, however, hedge fund indices are difficult to implement because direct investment in hedge funds is impractical. Unlike equities, hedge funds are not traded on liquid secondary markets and are often closed to new investment. A solution is hedge fund replication, which, rather than require direct investment in hedge funds, synthetically recreates hedge fund index returns by investing in portfolios that are exposed to the same underlying economic factors that drive hedge fund returns. This approach provides broad, cost-effective, hedge fund exposure and avoids the practical problems associated with direct hedge fund investment. As a consequence, such hedge fund clones exhibit lower tracking error and substantially higher raw and risk-adjusted returns than both investible and noninvestible hedge fund indices.

AB - In theory, analogous to equity indices, hedge fund indices can provide broad exposure to hedge funds in a cost-effective manner. In practice, however, hedge fund indices are difficult to implement because direct investment in hedge funds is impractical. Unlike equities, hedge funds are not traded on liquid secondary markets and are often closed to new investment. A solution is hedge fund replication, which, rather than require direct investment in hedge funds, synthetically recreates hedge fund index returns by investing in portfolios that are exposed to the same underlying economic factors that drive hedge fund returns. This approach provides broad, cost-effective, hedge fund exposure and avoids the practical problems associated with direct hedge fund investment. As a consequence, such hedge fund clones exhibit lower tracking error and substantially higher raw and risk-adjusted returns than both investible and noninvestible hedge fund indices.

KW - hedge fund replication

KW - hedge fund

KW - index

KW - tracking error

KW - hedge fund clone

KW - systematic risk

KW - non-linear exposures

U2 - 10.1093/oso/9780190607371.003.0025

DO - 10.1093/oso/9780190607371.003.0025

M3 - Chapter (Book)

SN - 9780190607371

SP - 460

EP - 490

BT - Hedge Funds

A2 - Baker, H. Kent

A2 - Filbeck, Greg

PB - Oxford University Press

CY - Oxford UK

ER -

Tupitsyn M, Lajbcygier P. Hedge fund replication. In Baker HK, Filbeck G, editors, Hedge Funds: Structure, Strategies, and Performance. 1st ed. Oxford UK: Oxford University Press. 2017. p. 460-490 https://doi.org/10.1093/oso/9780190607371.003.0025