A Cross-Sectional Machine Learning Approach for Hedge Fund Return Prediction and Selection

References

• Ackermann C , McEnally R , Ravenscraft D (1999) The performance of hedge funds: Risk, return, and incentives. J. Finance 54(3):833–874.Crossref, Google Scholar
• Agarwal V , Naik NY (2004) Risks and portfolio decisions involving hedge funds. Rev. Financial Stud. 17(1):63–98.Crossref, Google Scholar
• Agarwal V , Daniel ND , Naik NY (2009) Role of managerial incentives and discretion in hedge fund performance. J. Finance 64(5):2221–2256.Crossref, Google Scholar
• Amenc N , Bied SE , Martellini L (2003) Predictability in hedge fund returns. Financial Anal. J. 59(5):32–46.Crossref, Google Scholar
• Aragon GO (2007) Share restrictions and asset pricing: Evidence from the hedge fund insdustry. J. Financial Econom. 83(1):33–58.Crossref, Google Scholar
• Avramov D , Barras L , Kosowski R (2013) Hedge fund return predictability under the magnifying glass. J. Financial Quant. Anal. 48(4):1057–1083.Crossref, Google Scholar
• Avramov D , Kosowski R , Naik NY , Teo M (2011) Hedge funds, managerial skill, and macroeconomic variables. J. Financial Econom. 99(3):672–692.Crossref, Google Scholar
• Bai J , Ng S (2008) Forecasting economic time series using targeted predictors. J. Econometrics 146(2):304–317.Crossref, Google Scholar
• Bali TG , Gokcan S , Liang B (2007) Value at risk and the cross-section of hedge fund returns. J. Banking Finance 31(4):1135–1166.Google Scholar
• Bengio Y (2009) Learning deep architectures for AI. Foundations Trends Machine Learn . 2(1):1–127.Google Scholar
• Berk JB , Green RC (2004) Mutual fund flows and performance in rational markets. J. Political Econom. 112:1269–1295.Crossref, Google Scholar
• Breiman L (2001) Random forests. Machine Learn. 45:5–32.Google Scholar
• Brown SJ (2012) Quantitative measures of operational risk: An application to funds management. Accounting Finance 52(4):1001–1011.Crossref, Google Scholar
• Brown SJ , Fraser TL , Liang B (2008) Hedge fund due diligence: A source of alpha in a hedge fund portfolio strategy. J. Investment Management 6(4):23–33.Google Scholar
• Cao C , Chen Y , Liang B , Lo AW (2013) Can hedge funds time market liquidity? J. Financial Econom. 109(2):493–516.Crossref, Google Scholar
• Carhart MM (1997) On persistence in mutual fund performance. J. Finance 52(1):57–82.Crossref, Google Scholar
• Cassar GJ , Gerakos JJ , Green JR , Hand JR , Neal M (2017) Hedge fund voluntary disclosure. Accounting Rev. 93(2):117–135.Crossref, Google Scholar
• Chen Y (2007) Timing ability in the focus market of hedge funds. J. Investment Management 5(2):66–98.Google Scholar
• Chen Y , Liang B (2007) Do market timing hedge funds time the market? J. Financial Quant. Anal. 42(4):827–856.Crossref, Google Scholar
• Chen Y , Cliff MT , Zhao H (2017) Hedge funds: The good, the bad, and the lucky. J. Financial Quant. Anal. 52(3):1081–1109.Crossref, Google Scholar
• DeSouza C , Gokcan S (2004) Hedge fund investing: A quantitative approach to hedge fund manager selection and de-selection. J. Wealth Management 6(4):52–73.Crossref, Google Scholar
• Edwards FR , Caglayan MO (2001) Hedge fund performance and manager skill. J. Futures Markets: Futures, Options, Other Derivative Products 21(11):1003–1028.Crossref, Google Scholar
• Fama EF , French KR (1992) The cross-section of expected stock returns. J. Finance 47(2):427–465.Crossref, Google Scholar
• Fama EF , French KR (2015) A five-factor asset pricing model. J. Financial Econ. 116(1):1–22.Crossref, Google Scholar
• Fama EF , MacBeth JD (1973) Risk, return, and equilibrium: Empirical tests. J. Political Econom. 81(3):607–636.Crossref, Google Scholar
• Ferson W , Chen Y (2017). How many good and bad funds are there, really? Working paper, University of Southern California, Los Angeles.Google Scholar
• Friedman JH (2002) Stochastic gradient boosting. Comput. Statist. Data Anal. 38(4):367–378.Crossref, Google Scholar
• Fung W , Hsieh D (2000) Performance characteristics of hedge funds and commodity funds: Natural vs spurious biases. J. Financial Quant. Anal. 35(3):291–307.Crossref, Google Scholar
• Fung W , Hsieh D (2004) Hedge fund benchmarks: A risk-based approach. Financial Anal. J. 60(5):65–80.Crossref, Google Scholar
• Getmansky M , Lo AW , Makarov I (2004) An econometric model of serial correlation and illiquidity in hedge fund returns. J. Financial Econom. 74(3):529–609.Crossref, Google Scholar
• Giglio SW , Xiu D (2016) Inference on risk premia in the presence of omitted factors. Technical report, University of Chicago.Google Scholar
• Giomouridis D , Vrontos I (2007) Hedge fund portfolio construction: A comparison of static and dynamic approaches. J. Banking Finance 31(1):199–217.Crossref, Google Scholar
• Goetzmann W , Ingersoll J , Ross S (2003) High-water marks and hedge fund management contracts. J. Finance 58(4):1685–1717.Crossref, Google Scholar
• Greyserman A , Kaminski K (2014) Trend Following with Managed Futures: The Search for Crisis Alpha (Wiley, Hoboken, NJ).Crossref, Google Scholar
• Gu S , Kelly B , Xiu D (2020) Empirical asset pricing via machine learning. Rev. Financial Stud. 33(5):2223–2273.Google Scholar
• Hamza O , Kooli M , Roberge M (2006) Further evidence on hedge fund return predictability. J. Wealth Management 9(3):68–79.Crossref, Google Scholar
• Harris R , Mazibas M (2013) Dynamic hedge fund portfolio construction: A semi-parametric approach. J. Banking Finance 37(1):139–149.Crossref, Google Scholar
• Hastie T , Tibshirani R , Friedman J (2009) The Elements of Statistical Learning: Data Mining , 2nd ed. (Springer, New York).Crossref, Google Scholar
• Heaton JB , Polson NG , Witte JH (2017) Deep learning for finance: Deep portfolios. Appl. Stochastic Models Bus. Indust. 33(1):3–12.Google Scholar
• Jurek JW , Stafford E (2015) The cost of capital for alternative investments. J. Finance 70(5):2185–2226.Crossref, Google Scholar
• Keating C , Shadwick WF (2002) A universal performance measure. J. Performance Measurement 6(3):59–84.Google Scholar
• Kosowski R , Naik NY , Teo M (2007) Do hedge funds deliver alpha? A Bayesian and bootstrap analysis. J. Financial Econom. 84(1):229–264.Crossref, Google Scholar
• Li H , Zhang X , Zhao R (2011) Investing in talents: Manager characteristics and hedge fund performances. J. Financial Quant. Anal. 46(1):59–82.Crossref, Google Scholar
• Liang B (1999) The performance of hedge funds: Risk, return, and incentives. Financial Anal. J. 55(4):72–85.Crossref, Google Scholar
• Liang B , Park H (2007) Risk measures for hedge funds: A cross-sectional approach. Eur. Financial Managemant 13(2):333–370.Crossref, Google Scholar
• Liang B , Park H (2010) Predicting hedge fund failure: A comparison of risk measures. J. Financial Quant. Anal. 45(1):199–222.Crossref, Google Scholar
• Loh W-Y (2011) Classification and regression trees. WIREs Data Mining Knowledge Discovery 1:14–23.Crossref, Google Scholar
• Mitchell TM (1997) Machine Learning (McGraw-Hill Science/Engineering/Math, New York).Google Scholar
• Moskowitz TJ , Ooi YH , Pedersen LH (2012) Time series momentum. J. Financial Econom. 104:228–250.Crossref, Google Scholar
• Ross SA (1976) The arbitrage theory of capital asset pricing. J. Econom. Theory 13(3):341–360.Crossref, Google Scholar
• Schmidhuber J (2015) Deep learning in neural networks: An overview. Neural Networks 61:85–117.Crossref, Google Scholar
• Scott RC , Horvath PA (1980) On the direction of preference for moments of higher order than the variance. J. Finance 35(4):915–919.Crossref, Google Scholar
• Sharpe WF (1964) Capital asset prices: A theory of market equilibrium under conditions of risk. J. Finance 19(3):425–442.Google Scholar
• Sirignano J , Sadhwani A , Giesecke K (2016) Deep learning for mortgage risk Working paper, University of Illinois, Urbana-Champaign.Google Scholar
• Sortino FA , Price LN (1994) Performance measurement in a downside risk framework. J. Investing 3(3):59–64.Crossref, Google Scholar
• Stein JC (2009) Presidential address: Sophisticated investors and market efficiency. J. Finance 64(4):1517–1548.Crossref, Google Scholar
• Sun Z , Wang A , Zheng L (2012) The road less traveled: Strategy distinctiveness and hedge fund performance. Rev. Financial Stud. 25(1):96–143.Crossref, Google Scholar
• Sun Z , Wang AW , Zheng L (2016) Only winners in tough times repeat: Hedge fund performance persistence over different market conditions. Finance and Economics Discussion Series 2016-030, Washington: Board of Governors of the Federal Reserve System.Google Scholar
• Tibshirani R (1996) Regression shrinkage and selection via the lasso. J. Roy. Statist. Soc. B . 58(1):267–288.Crossref, Google Scholar
• Titman S , Tiu C (2011) Do the best hedge funds hedge? Rev. Financial Stud. 24(1):123–168.Crossref, Google Scholar
• Wang L , Zhu J (2008) Financial market forecasting using a two-step kernel learning method for the support vector regression. Ann. Oper. Res. 174:103–120.Crossref, Google Scholar
• Wegener C , von Nitzsch R , Cengiz C (2010) An advanced perspective on the predictability in hedge fund returns. J. Banking Finance 34(11):2694–2708.Crossref, Google Scholar
• Welsch RE , Zhou X (2007) Application of robust statistics to asset allocation models. Stata J. 5(1):97–114.Google Scholar