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Hedge Fund Return Dynamics: long memory and regime switching
LIMAM, mohamed-Ali; Terraza, Virginie
2014
 

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Keywords :
Hedge Funds; Persistence; Markov Switching ARFIMA
Abstract :
[en] This paper investigates the dynamics of hedge fund returns and their behavior of persistence in a unified framework through the Markov Switching ARFIMA model of Härdle and Tsay (2009). Major results based on the CSFB/Tremont hedge fund indexes monthly data during the period 1994-2012, highlight the importance of the long memory parameter magnitude i.e shocks in shaping hedge fund return dynamics and show that the hedge fund dynamics are characterized by two levels of persistence: in the first one, associated to low-volatility regime, hedge fund returns are a stationary long memory process whereas in the second one, associated to high-volatility regime, returns exhibit higher parameter of fractional integration. More precisely, in high volatility regime i.e periods of turmoil, the process tends to be non-stationary but still exhibits a mean-reverting behavior. The findings are interesting and enable us to establish a relationship between hedge fund return states and memory phenomenon.
Disciplines :
Finance
Author, co-author :
LIMAM, mohamed-Ali
Terraza, Virginie ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
Language :
English
Title :
Hedge Fund Return Dynamics: long memory and regime switching
Publication date :
February 2014
Number of pages :
24
Available on ORBilu :
since 26 February 2015

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