Trend reversal and alpha generation by hedge funds

Hedge funds use different strategies to outperform benchmark indices by undertaking complex, versatile and dynamic techniques. These strategies may however create alpha generating opportunities in the time series that may be contrary to the existence of random walk behaviour. Tests using unit-root s...

Full description

Saved in:
Bibliographic Details
Published inApplied economics Vol. 55; no. 35; pp. 4037 - 4059
Main Authors Bhargava, Vivek, Chaudhry, Mukesh K.
Format Journal Article
LanguageEnglish
Published London Routledge 27.07.2023
Taylor & Francis Ltd
Subjects
and G23
Economic analysis
Economic theory
Hedge funds
Prospects
Random walk
structural breaks
Time series
Online AccessGet full text

Cover

More Information
Summary:Hedge funds use different strategies to outperform benchmark indices by undertaking complex, versatile and dynamic techniques. These strategies may however create alpha generating opportunities in the time series that may be contrary to the existence of random walk behaviour. Tests using unit-root structural break analysis led to rejection of random walk hypothesis favouring trend stationarity or mean reversion. Additional tests including structural breaks are conducted to establish persistence of alpha generating opportunities for twelve different hedge fund indices. For some strategies, profitable prospects occur only before the break date, as evidence suggests a paradigm shift between the two periods.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2022.2123104