Hedge fund replication with a genetic algorithm: breeding a usable mousetrap

0454923 - NHÚ 2016 RIV GB eng J - Článek v odborném periodiku
Payne, B. C. - Trešl, Jiří
Hedge fund replication with a genetic algorithm: breeding a usable mousetrap.
Quantitative Finance. Roč. 15, č. 10 (2015), s. 1705-1726. ISSN 1469-7688. E-ISSN 1469-7696
Grant CEP: GA ČR(CZ) GA14-31783S
Institucionální podpora: RVO:67985998
Klíčová slova: hedge funds * replication * genetic algorithm
Kód oboru RIV: AH - Ekonomie
Impakt faktor: 0.794, rok: 2015

This study tests the performance of 14 hedge fund index clones created using parsimonious out-of-sample replication portfolios consisting solely of easily accessible assets. We employ a genetic algorithm to integrate two traditional hedge fund replication methods, the factor-based and payoff distribution replication methods, and evaluate over 4500 commonly held stocks, bonds and mutual funds as replicating portfolio components. In-sample performance indicates that hedge funds have return series similar to portfolios of commonly held assets, and out-of-sample results provide evidence that the in-sample relationships can hold with infrequent rebalancing. This hedge fund replication attempt rates well relatively to prior efforts as 11 replicating portfolios have out-of-sample correlation values of at least 60%. Overall, these results show promise for using a genetic algorithm technique to replicate hedge fund returns.
Trvalý link: http://hdl.handle.net/11104/0255637