Hedge fund portfolio selection with modified expected shortfall

K. Boudt; Brian G. Peterson; P. Carl

doi:10.2495/CF080101

Hedge fund portfolio selection with modified expected shortfall

K. Boudt^*, Brian G. Peterson, P. Carl

^*Corresponding author for this work

Econometrics and Data Science

Research output: Chapter in Book / Report / Conference proceeding › Conference contribution › Academic › peer-review

Abstract

Modified Value-at-Risk (VaR) and Expected Shortfall (ES) are recently introduced downside risk estimators based on the Cornish-Fisher expansion for assets such as hedge funds whose returns are non-normally distributed. Modified VaR has been widely implemented as a portfolio selection criterion.We are the first to investigate hedge fund portfolio selection using modified ES as optimality criterion. We show that for the EDHEC hedge fund style indices, the optimal portfolios based on modified ES outperform out-of-sample the EDHEC Fund of Funds index and have better risk characteristics than the equal-weighted and Fund of Funds portfolios.

Original language	English
Title of host publication	Computational Finance and its Applications III
Pages	99-107
Number of pages	9
Volume	41
DOIs	https://doi.org/10.2495/CF080101
Publication status	Published - 2008
Event	3rd International Conference on Computational Finance and its Applications, Computational Finance 2008 - Cadiz, Spain Duration: 27 May 2008 → 29 May 2008

Conference

Conference	3rd International Conference on Computational Finance and its Applications, Computational Finance 2008
Country/Territory	Spain
City	Cadiz
Period	27/05/08 → 29/05/08

Keywords

Modified expected shortfall
Non-normal returns
Portfolio optimization

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.2495/CF080101

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title = "Hedge fund portfolio selection with modified expected shortfall",

abstract = "Modified Value-at-Risk (VaR) and Expected Shortfall (ES) are recently introduced downside risk estimators based on the Cornish-Fisher expansion for assets such as hedge funds whose returns are non-normally distributed. Modified VaR has been widely implemented as a portfolio selection criterion.We are the first to investigate hedge fund portfolio selection using modified ES as optimality criterion. We show that for the EDHEC hedge fund style indices, the optimal portfolios based on modified ES outperform out-of-sample the EDHEC Fund of Funds index and have better risk characteristics than the equal-weighted and Fund of Funds portfolios.",

keywords = "Modified expected shortfall, Non-normal returns, Portfolio optimization",

author = "K. Boudt and Peterson, {Brian G.} and P. Carl",

year = "2008",

doi = "10.2495/CF080101",

language = "English",

isbn = "9781845641115",

volume = "41",

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AU - Boudt, K.

AU - Peterson, Brian G.

AU - Carl, P.

PY - 2008

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N2 - Modified Value-at-Risk (VaR) and Expected Shortfall (ES) are recently introduced downside risk estimators based on the Cornish-Fisher expansion for assets such as hedge funds whose returns are non-normally distributed. Modified VaR has been widely implemented as a portfolio selection criterion.We are the first to investigate hedge fund portfolio selection using modified ES as optimality criterion. We show that for the EDHEC hedge fund style indices, the optimal portfolios based on modified ES outperform out-of-sample the EDHEC Fund of Funds index and have better risk characteristics than the equal-weighted and Fund of Funds portfolios.

AB - Modified Value-at-Risk (VaR) and Expected Shortfall (ES) are recently introduced downside risk estimators based on the Cornish-Fisher expansion for assets such as hedge funds whose returns are non-normally distributed. Modified VaR has been widely implemented as a portfolio selection criterion.We are the first to investigate hedge fund portfolio selection using modified ES as optimality criterion. We show that for the EDHEC hedge fund style indices, the optimal portfolios based on modified ES outperform out-of-sample the EDHEC Fund of Funds index and have better risk characteristics than the equal-weighted and Fund of Funds portfolios.

KW - Modified expected shortfall

KW - Non-normal returns

KW - Portfolio optimization

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DO - 10.2495/CF080101

M3 - Conference contribution

AN - SCOPUS:58849088443

SN - 9781845641115

VL - 41

SP - 99

EP - 107

BT - Computational Finance and its Applications III

T2 - 3rd International Conference on Computational Finance and its Applications, Computational Finance 2008

Y2 - 27 May 2008 through 29 May 2008

ER -

Hedge fund portfolio selection with modified expected shortfall

Abstract

Conference

Keywords

UN SDGs

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