Template-type: ReDIF-Paper 1.0
Author-Name: Massimo Guidolin
Author-Name: Alexei Orlov
Title: Are Unconventional Monetary Policies a Priced Risk Factor for Hedge Fund Strategies?
Abstract: We test whether the unconventional monetary policy (UMP) announcements by the Federal Reserve and the European Central Bank represent a risk factor for the hedge fund industry as a whole and for ten commonly used strategies in particular. Using modified event studies and Markov switching models, we find that UMP announcements represent a risk factor for Convertible Arbitrage, Dedicated Short Bias, Emerging Markets, Equity Market Neutral, Fixed Income Arbitrage strategies as well as the Multi-Strategy type. We further test whether UMP announcements have an indirect effect on hedge funds’ performance through breaks in the parameters of the conventional risk factors. Using Chow and Bai-Perron tests, we find that for the industry as a whole and for all strategies, most of the UMP announcements correspond to break dates for the traditional factor loadings.
Classification-JEL: G12, G11, G17, C32, C53.
Keywords:Hedge fund strategies, unconventional monetary policy, risk factors, modified event studies, Markov switching models, breakpoint tests
Length: 60
Number: 20146
Creation-Date: 2020
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp20146.pdf
File-Format: application/pdf
File-Size: 761
Handle: RePEc:baf:cbafwp:cbafwp20146