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The option CAPM and the performance of hedge funds

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Abstract

We evaluate the investment performance of hedge funds using an asset pricing model that is characterized by a piecewise-linear stochastic discount factor, and which we estimate using the generalized method of moments by minimizing the Hansen–Jagannathan distance. Our results show that, once non-linearities and public information are taken into account, there is only evidence of positive performance for the overall hedge fund index, equity-market neutral strategy and the global macro strategy.

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Authors and Affiliations

  1. Financial Markets Department, Bank of Canada, 234, Wellington st., K1A 0G9, Ottawa, ON, Canada

    Antonio Diez de los Rios

  2. Finance, Law and Accounting Department, EDHEC Business School, 393, Promenade des Anglais, BP 1116, 06202, Nice, France

    René Garcia

Authors
  1. Antonio Diez de los Rios
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  2. René Garcia
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Correspondence to René Garcia.

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The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Canada.

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Diez de los Rios, A., Garcia, R. The option CAPM and the performance of hedge funds. Rev Deriv Res 14, 137–167 (2011). https://doi.org/10.1007/s11147-011-9062-9

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  • DOI: https://doi.org/10.1007/s11147-011-9062-9

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