Hedge fund replication with a genetic algorithm: Breeding a usable mousetrap

Payne, Brian C. ; Tresl, Jiri

DOI: https://doi.org/10.1080/14697688.2014.979222
URL: https://www.tandfonline.com/doi/full/10.1080/14697...
Additional URL: https://digitalcommons.unl.edu/financefacpub/33/
Document Type: Article
Year of publication: 2015
The title of a journal, publication series: Quantitative Finance
Volume: 15
Issue number: 10
Page range: 1705-1726
Place of publication: London [u.a.]
Publishing house: Routledge, Taylor & Francis
ISSN: 1469-7688 , 1469-7696
Publication language: English
Institution: Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
Subject: 650 Management
Abstract: This study tests the performance of 14 hedge fund index clones created using parsimonious out-of-sample replication portfolios consisting solely of easily accessible assets. We employ a genetic algorithm to integrate two traditional hedge fund replication methods, the factor-based and pay-off distribution replication methods, and evaluate over 4500 commonly held stocks, bonds and mutual funds as replicating portfolio components. In-sample performance indicates that hedge funds have return series similar to portfolios of commonly held assets, and out-of-sample results provide evidence that the in-sample relationships can hold with infrequent rebalancing. This hedge fund replication attempt rates well relatively to prior efforts as 11 replicating portfolios have out-of-sample correlation values of at least 60%. Overall, these results show promise for using a genetic algorithm technique to replicate hedge fund returns.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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