TY - JOUR
T1 - Risk Measures for Autocorrelated Hedge Fund Returns
AU - Di Cesare, A.
AU - Stork, P.A.
AU - de Vries, C.G.
PY - 2015
Y1 - 2015
N2 - Standard risk metrics tend to underestimate the true risks of hedge funds because of serial correlation in the reported returns. Getmansky, Lo, and Makarov (2004) derive mean, variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Following their lead, we derive adjusted downside and global measures of individual and systemic risks. We distinguish between normally and fat-tailed distributed returns and show that adjustment is particularly relevant for downside risk measures in the case of fat tails. An empirical analysis reveals that unadjusted risk measures can considerably underestimate the true extent of individual and systemic risks for hedge funds.
AB - Standard risk metrics tend to underestimate the true risks of hedge funds because of serial correlation in the reported returns. Getmansky, Lo, and Makarov (2004) derive mean, variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Following their lead, we derive adjusted downside and global measures of individual and systemic risks. We distinguish between normally and fat-tailed distributed returns and show that adjustment is particularly relevant for downside risk measures in the case of fat tails. An empirical analysis reveals that unadjusted risk measures can considerably underestimate the true extent of individual and systemic risks for hedge funds.
UR - https://www.scopus.com/pages/publications/84949644675
UR - https://www.scopus.com/inward/citedby.url?scp=84949644675&partnerID=8YFLogxK
U2 - 10.1093/jjfinec/nbu023
DO - 10.1093/jjfinec/nbu023
M3 - Article
SN - 1479-8409
VL - 13
SP - 868
EP - 895
JO - Journal of Financial Econometrics
JF - Journal of Financial Econometrics
IS - 4
ER -