Understanding Mutual Fund Nber
NBER WORKING PAPER SERIES
UNDERSTANDING MUTUAL FUND AND HEDGE FUND STYLES USING RETURN BASED STYLE ANALYSIS
Arik Ben Dor Ravi Jagannathan
Working Paper 9111 http://www.nber.org/papers/w9111
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2002
We would like to thank David A. Hsieh for providing us with the hedge funds returns data and Narayan Naik for the options strategy return data. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.
© 2002 by Arik Ben Dor and Ravi Jagannathan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Understanding Mutual Fund and Hedge Fund Styles Using Return Based Style Analysis Arik Ben Dor and Ravi Jagannathan NBER Working Paper No. 9111 August 2002 JEL No. G10, G14, G20, G23 ABSTRACT We provide an introduction to the use of return based style analysis of Sharpe (1992) in practice. We demonstrate the importance of selecting the right style benchmarks and how the use of inappropriate style benchmarks may lead to wrong conclusions. When style analysis is applied to sector oriented funds such as healthcare, precious metals, energy, technology, etc., the set of benchmarks should include sector or industry indexes. Following Glosten and Jagannathan (1994), Fung and Hsieh (2001), and Agarwal and Naik (2001), we show how to analyze the investment style of hedge fund managers by including the returns on selected option based strategies as style benchmarks. In the examples we consider, return based style analysis provides insights not available through commonly used “peer” evaluation alone.
Arik Ben Dor Northwestern University
Ravi Jagannathan J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Leverone/Anderson Complex Evanston, IL
UNDERSTANDING MUTUAL FUND AND HEDGE FUND STYLES USING RETURN BASED STYLE ANALYSIS
Arik Ben Dor Ravi Jagannathan
Working Paper 9111 http://www.nber.org/papers/w9111
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2002
We would like to thank David A. Hsieh for providing us with the hedge funds returns data and Narayan Naik for the options strategy return data. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.
© 2002 by Arik Ben Dor and Ravi Jagannathan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Understanding Mutual Fund and Hedge Fund Styles Using Return Based Style Analysis Arik Ben Dor and Ravi Jagannathan NBER Working Paper No. 9111 August 2002 JEL No. G10, G14, G20, G23 ABSTRACT We provide an introduction to the use of return based style analysis of Sharpe (1992) in practice. We demonstrate the importance of selecting the right style benchmarks and how the use of inappropriate style benchmarks may lead to wrong conclusions. When style analysis is applied to sector oriented funds such as healthcare, precious metals, energy, technology, etc., the set of benchmarks should include sector or industry indexes. Following Glosten and Jagannathan (1994), Fung and Hsieh (2001), and Agarwal and Naik (2001), we show how to analyze the investment style of hedge fund managers by including the returns on selected option based strategies as style benchmarks. In the examples we consider, return based style analysis provides insights not available through commonly used “peer” evaluation alone.
Arik Ben Dor Northwestern University
Ravi Jagannathan J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Leverone/Anderson Complex Evanston, IL
References: 38 APPENDIX 2 - Growth and Income Funds Objective and Investment Strategy (Based on funds’ prospectuses as of December 2001)