Hedge Fund's Performance Black Box - Baeuml, Matthias
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This book addresses the question from where superior returns of fixed income arbitrage hedge funds come. I show that a dynamic multi-linear replication strategy identifies style factors to which fixed income arbitrageurs are exposed. A forward and backward looking stepwise regression reveals the link between asset-based style and return-based style factors from January 1998 to December 2007. The major findings are as follows: strategy-wise, the long-only exposure is steadily increasing over time whereas trend-following and convergence trades seem to replace passive spread trades.…mehr

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Produktbeschreibung
This book addresses the question from where superior returns of fixed income arbitrage hedge funds come. I show that a dynamic multi-linear replication strategy identifies style factors to which fixed income arbitrageurs are exposed. A forward and backward looking stepwise regression reveals the link between asset-based style and return-based style factors from January 1998 to December 2007. The major findings are as follows: strategy-wise, the long-only exposure is steadily increasing over time whereas trend-following and convergence trades seem to replace passive spread trades. Location-wise, particularly swap spread positions are held in the portfolios. At the same time, mortgage-backed securities diminish significantly. I also find that a one standard deviation movement in the convertible bond spread leads to a 661.56 bps swing in arbitrage returns. That said, my findings contribute to the understanding of the systematic risk caused by hedge funds. I also find good news for investors: the alpha share is significantly positive in almost all sub-periods, and an index based on my model properly captures the statistical properties of fixed income arbitrage hedge funds.
Autorenporträt
Matthias Baeuml was born in Regensburg, Germany. He graduated both in business administration as well as in economics from the University of St. Gallen (HSG), Switzerland, in 2009. Mr. Baeuml holds several renowned scholarships, and he is particularly interested in the link between economics and politics.