文档介绍：Preliminary – Comments e
Hedge Fund Risk Factors and Value at Risk of Credit
Trading Strategies
By
John Okunev and Derek White*
October 2003
* Okunev, Principal Global Investors, Level 11, 888 7th Avenue, New York, NY 10019,
@; White, School of Banking and Finance, University of New South Wales,
UNSW Sydney, NSW 2052, Australia, ******@. We wish to thank seminar participants
at the 2003 European FMA, 2003 French Finance Association, and the University of Otago for helpful
comments and suggestions. We are very grateful for research assistance provided by Lindsay Taylor.
We are responsible for all errors.
Hedge Fund Risk Factors and Value at Risk of Credit
Trading Strategies
Summary
This paper analyzes the risk characteristics for various hedge fund strategies
specializing in fixed e instruments. Because fixed e hedge fund strategies
have exceptionally high autocorrelations in reported returns and this is taken as
evidence of return smoothing, we first develop a method pletely eliminate any
order of serial correlation across a wide array of time series processes. Once this is
complete, we determine the underlying risk factors to the “true” hedge fund returns
and examine the incremental benefit attained from using nonlinear payoffs relative to
the more traditional linear factors. For a great many of the hedge fund indices we find
the strongest risk factor to be equivalent to a short put position on high-yield debt. In
general, we find a moderate benefit to using the nonlinear risk factors in terms of the
ability to explain reported returns. However, in some cases this fit is not stable even
over the in-sample period. Finally, we examine the benefit to using various factor
structures for estimating the value-at-risk of the hedge funds. We find, in general, that
using nonlinear factors slightly increases the estimated downside risk levels of