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Greg Gregoriou, Associate Professor of Finance and Coordinator of Faculty Research, School of Business and Economics, State University of New York, Plattsburgh

Description
With about $450 billion in assets, funds of hedge funds are the most recent darling of investors. While hedge funds carry high risk for the promise of high returns they are designed for the very rich and for large institutional investors such as pension funds. A Fund of Hedge Funds (FOF) spreads investments among a number of hedge funds to reduce risk and provide diversification, while maintaining the potential for higher than average returns. Odds are that some pension fund of yours is invested heavily in these products, and more recently these FOFs have been opened to more and more individual investors in offshore jurisdictions with lower minimum entry levels. Since this is a new and extremely fast-moving financial phenomenon, academic research has just begun in earnest, and this is the first book to present rigorous academic research by some of the leading lights in academic finance, carefully analyzing the broad array of issues involved in FOFs.

Table of Contents
Preface and Acknowledgments About the editor List of contributors Part One Performance 1 Rank alpha funds of hedge funds Carol Alexander and Anca Dimitriu 1.1 Introduction 1.2 Hedge fund data and biases 1.3 Factor models for hedge funds 1.4 Model estimation 1.5 Rank alpha 1.6 Optimising funds of hedge funds 1.7 Cleaning the covariance matrix 1.8 Performance analysis of rank alpha portfolios 1.9 Conclusion References 2 Funds of hedge funds: bias and persistence in returns Daniel Capocci and Georgers Hubner 2.1 Introduction 2.2 Database 2.3 Methodology 2.4 Descriptive statistics 2.5.1 Bias analysis 2.5.2 Survivorship bias 2.5.3 Instant return history bias 2.6 Persistence in performance 2.6.1 Persistence in performance based on past performance 2.6.2 Persistence in performance based on past risk measures 2.7 Conclusion References 3 Replication and evaluation of fund of funds returns 1994-2005 Harry M. Kat and Helder P. Palaro 3.1 Introduction 3.2 The KP efficiency measure 3.3 Evaluation results 3.4 Distributional analysis 3.5 Conclusion References 4 Factor decomposition of fund of funds returns Jean-Francois Bacmann, Pierre Jeanneret, and Stefan Scholz 4.1 Introduction 4.2 Experimental framework 4.3 Factor model for fund of funds 4.4 Sample formation 4.5 Performance decomposition of FOF portfolios 4.6 Principal components of FOF returns 4.7 Conclusion References 5 Optimal fund of fund asset allocation: hedge funds, CTAs and REITs Nicolas Papageorgiou and Alain Elkaim 5.1 Introduction 5.2 Data 5.3 The methodology 5.4 Results 5.5 Conclusion References 6 The changing performance and factor risks of fund of funds in the modern period Keith H. Black 6.1 Characteristics of funds of funds 6.2 Comparing returns: funds of funds vs. hedge funds 6.3 Ancient history vs. modern history: LTCM as the defining moment 6.4 Factor analysis of returns 6.5 The future of funds of funds References 7 Hedge fund indices: are they cost-effective alternatives to fund of funds? Kathryn Wilkens 7.1 Introduction 7.2 Fund of funds 7.3 Investable hedge fund indices 7.4 Distribution of returns and potential biases 7.5 Asset based style factors 7.6 Mean excess return and Sharpe ratio comparisons 7.7 Fung and Hsieh model alphas and information ratio comparisons 7.8 Correlation with traditional asset returns and lagged equity return comparisons 7.9 Conclusion References 8 Simple hedge fund strategies as an alternative to funds of funds: evidence from large cap funds Greg N. Gregoriou, Georges Hubner, Nicolas Papageorgiou, and Fabrice Rouah 8.1 Introduction 8.2 Data 8.3 Methodology 8.4 Empirical results 8.5 Conclusion References Part Two Diversification, Selection, Allocation and Hedge Fund Indices 9 Funds of funds of hedge funds: welcome to diworsification Francois-Serge Lhabitant and Nicolas Laporte 9.1 Introduction 9.2 The art and science of diversification 9.3 Analysis 9.4 Diversification results 9.5 How about the fees? 9.6 Conclusion References 10 Style analysis of funds of hedge funds: measurement of asset allocation and style drift Andreas Oehler and Oliver A. Schwindler 10.1 Introduction 10.2 Sharpe?s model for style analysis 10.3 Data set 10.4 Hedge fund classification 10.5 Accuracy of Sharpe?s model 10.6 Measuring the style drift 10.7 Conclusion References 11 Gains from adding funds of hedge funds to portfolios of traditional assets: An international perspective Niclas Hagelin, Bengt Pramborg, and Fredrik Stenberg 11.1 Introduction 11.2 Data 11.3 Method 11.4 Results 11.5 Conclusion References 12 Tactical asset allocation for hedge fund indices at one- to six-month horizons Laurent Favre 12.1 Introduction 12.2 The Model 12.3 The results 12.4 Conclusion References 13 Single strategy funds of hedge funds: how many funds? Ryan J. Davies, Harry M. Kat, and Sa Lu 13.1 Introduction 13.2 Decomposition 13.3 Conclusion References Part Three Construction, and Statistical Properties of Funds of Hedge Funds 14 The distributional characteristics of fund of hedge fund returns Elaine Hutson, Margaret Lynch and Max Stevenson 14.1 Introduction 14.2 Hedge funds: background 14.3 Testing for normality 14.4 Data and summary performance information14.5 Results 14.6 Conclusion References 15 Funds of funds and diversification effect Maher Kooli 15.1 Introduction 15.2 Mean-variance spanning tests 15.3 Data description 15.4 Empirical results 15.5 Conclusion References 16 Higher-moment performance characteristics of funds of funds Zsolt Berenyi 16.1 Introduction 16.2 Performance assessment basics 16.3 Data and methodology 16.4 Performance characteristics of funds of funds 16.5 Enhancing FOF performance 16.6 Results 16.7 Conclusion References 17 The market risk of funds of hedge funds: a conditional approach Florent Pochon and Jerome Te?letche 17.1 Introduction 17.2 Implications for hedge funds returns modelling 17.3 An application to stress testing 17.4 Conclusion References 18 Revisiting the Fama and French model: An application to funds of funds using nonlinear methods Eric Dube, Clement Gignac and Francois Eric Racicot 18.1 Introduction 18.2 Methodology 18.3 Data 18.4 Results 18.5 Conclusion References 19 Investor?s choice: an investor-driven, forward-looking optimization approach to fund of hedge fund construction Clemens H. Glaffig 19.1 Introduction 19.2 The data set: defining market patterns 19.3 The methodology: investor-driven objectives and the optimization algorithm 19.4 Empirical analysis: exhibiting the new degrees of freedom 19.5 Conclusion Reference Part Four Monitoring Risk, Overview of FOFs, Due Diligence, and Special Classes of Funds of Funds 20 Moments analysis in risk and performance monitoring of funds of hedge funds David K.C. Lee, Kok Fai Phoon, and Choon Yuan Wong 20.1 Introduction 20.2 Funds of hedge funds 20.3 Investing in funds of hedge funds – a practical approach 20.4 Data description, empirical analysis and results 20.5 Analysis of trade-off 20.6 Conclusion References 21 An overview of funds of hedge funds Jean Brunel 21.1 Introduction 21.2 Creating a portfolio of hedge funds 21.3 Ongoing portfolio management 21.4 Returning to the problem of the individual investor 21.5 Tracking funds of funds 21.6 Conclusion References 22 Institutional investment due diligence on funds of hedge funds John E. Dunn, III 22.1 Introduction 22.2 The gap: fiduciary responsible investing vs. private client products 22.3 Exploring institutional fiduciary responsibility 22.4 Exploring fiduciary responsibility: what IBM has that the average hedge fund of fund needs to incorporate 22.5 Conclusion References 23 Synthetic CDO squares and the continuing evolution of funds of funds Paul Ali 23.1 Introduction 23.2 Development of synthetic CDO squares 23.3 Structure of synthetic CDO squares 23.4 Recharacterisation risk 23.5 Conclusion References 24 Natural resources fund of funds: essays on active management, risk management, and due diligence Rian Akey, Hilary Till, and Aleks Kins 24.1 Introduction 24.2 Emerging demand for natural-resources investments 24.3 Diversified, active-management opportunities in natural-resources investing 24.4 Risk management in natural-resources futures trading 24.5 Due diligence in natural-resources fund of fund investing 24.6 Conclusion References 25 Identifying and monitoring risk in a fund of hedge funds portfolio Meredith A. Jones 25.1 Introduction 25.2 Diversification and over-diversification 25.3 Liquidity 25.4 Transparency 25.5 Factor and impact analysis 25.6 Conclusion References 26 The wizardry of analytics for funds of funds Mary Fjelstad and Leola Ross 26.1 If I only had good risk analytics... 26.2 You?re not in Kansas anymore 26.3 Click your heels and say ?There?s nothing like diversification?? 26.4 We?re off to see the wizard? 26.5 The man behind the curtain 26.6 Follow the yellow brick road? 26.7 You?re never going back to Kansas 27 Quantitative hedge fund selection for fund of funds Stephan Joehri and Markus Leippold 27.1 Introduction 27.2 Indicators for hedge fund selection 27.3 Data 27.4 Empirical results 27.5 Conclusion References

Hardcover
464 pages