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Aggregate Alpha in the Hedge Fund Industry: A Further Look at Best Ideas

Please visit our research portal for context on the study: https://www.epsilonmgmt.com/research/hedge-fund-best-ideas

Repository containing all files for the following paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3586138

Files are organized by ‘Best Idea’ Method. Methodologies for Methods 1 – 9 are detailed on Page 8 (Section 4.2) of the paper linked to above.

Each Method is further grouped into 31 sub-analyses. Sub-analyses reproduce Cohen, Sili, Polk Best Idea nested methodologies detailed in their paper (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1364827) which were unpublished in ours. These include regression analysis from Tables 2 – 13 of their paper.

We also include of ‘Best minus Rest’ and ‘Rest Idea’ portfolios detailed in sections 5.3.3 and 5.3.4 of our paper (pages 15 – 18).

Methods

  • Method 1
    • Market Tilt
  • Method 2
    • Variance-adjusted Market Tilt
  • Method 3
    • Intra-Cap Weight Tilt
  • Method 4
    • Variance-adjusted Intra-Cap Weight Tilt
  • Method 5
    • Mean-Variance Tilt
  • Method 6
    • Cap-Weight Adjusted Mean-Variance Tilt
  • Method 7
    • Intra-Cap Weight Adjusted Mean-Variance Tilt
  • Method 8
    • Raw Portfolio Weight
  • Method 9
    • Asset Weighted HFU Tilt

File Structure

  • Title and Imports
  • Fetch holdings, benchmark, returns information
  • Calculate Best Ideas with respect to tilt and additional filters
  • Back-test the portfolio and report cumulative / yearly performance
  • Fetch Factor Models (Carhart Four, Fama French Five, Q Factor Model)
  • Present Regressions
    • Full Time Period
      • Carhart Four, Fama French Five, Q Factor Model
        • Unadjusted, Newey West (9 lag), Newey West (18 lag)
    • Pre-Crisis
      • Carhart Four, Fama French Five, Q Factor Model
        • Unadjusted, Newey West (9 lag), Newey West (18 lag)
    • Post-Crisis
      • Carhart Four, Fama French Five, Q Factor Model
        • Unadjusted, Newey West (9 lag), Newey West (18 lag)

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