New Insight on the Performance of Equity Long/short Investment Styles [extrait BMI 140] Maximize

New Insight on the Performance of Equity Long/short Investment Styles [extrait BMI 140]


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Long-short equity strategies have recently generated exceptional performance raising a set of concerns about the strategies? propensity to deliver alpha or beta. This paper revisits the performance of equity long-short hedge funds across investments styles. We first categorize individual hedge funds with regard to their size and/or value factor investing along the generalization of Sharpe (1992) style analysis. Style weights on size and value factors are used to split the equity long-short universe in 5x5 hedge fund style portfolios. To analyze the performance of each style, we consider two sets of innovative factors. First, we apply sequential Fama-French model of Lambert, Fays and Hübner (2015). Besides, to captures downside and extreme risk embedded in hedge fund strategies we augment the model with the co-skewness and co-kurtosis factors developed by Lambert and Hübner (2013). Under this framework, we perform cross-sectional performance analyses of individual hedge funds as well as time-series analysis on the hedge fund style broad category. Our contributions are threefold. First, our alternative framework significantly improves the explanatory power of the multi-factor model in the context of long-short equity funds, second, considering higher-moment factors aim to capture part of the abnormal return of the downside and extreme risk exposures taken by a fund manager, and finally, long-short equity hedge funds are, to some extent, less exposed to small capitalisation stocks than expected and instead rather prefer higher momentum levels in their strategies.JEL Classification: G11; G12.Keywords: Hedge funds; Long/Short equity; Fama-French factor; Size; Book-to-market; Momentum; Mimicking Portfolios.

Auteurs :Fays Boris
Extrait de la revue BMI 140

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New Insight on the Performance of Equity Long/short Investment Styles [extrait BMI 140]

New Insight on the Performance of Equity Long/short Investment Styles [extrait BMI 140]

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