Statistical analysis of hedge funds returns, Basic Statistics

In this problem set we are going to analyze returns of indices for three hedge funds strategies (market neutral, risky arbitrage, long/short). The indices are constructed by CSFB/Tremont.

In addition to the three HF strategies, we have time series for the market return, SMB, HML, and returns on the MSCI emerging and world markets returns.

604_STATISTICAL ANALYSIS OF HEDGE FUNDS RETURNS.png

Answer the following questions:

1. Find some information about these strategies on the internet and provide a short description of the similarities/differences in their investment styles.

2. Make a time series plot of the strategies returns (variables MKTneutral, RISKarb, and Long_short) and the market (Mkt) following the menus indicated on the right-picture (then select the variables on the left, click select and then OK). Click on the graph and copy/paste to a word document. Provide some thoughts on the behavior of the different time series, discussing the range of variation of the returns, the presence of extreme events (by the way, the returns are in %). Do you "visually" catch any significant difference in the time series properties of HF returns?

1783_STATISTICAL ANALYSIS OF HEDGE FUNDS RETURNS1.png

3. Scatter plot each of the three HF returns against the market (menu View -> Graph Specified Vars -> X-Y Scatter). On the window that appears, select the market return for the X-axis and one of the three HF returns for the Y-axis. Click OK. Copy/Paste the graph and do it for the other two HF returns as well. The line across the points indicates the regression line (more on what it means next week).

Discuss what you learn about HF returns (compared to the market return) by looking at these scatter plots, if you think there is correlation between HF and market return (positive/negative? strong/weak?). Which among the three HF returns looks like having highest correlation with the market?

4. On the list of variables, select the three HF returns and the market; then, go to menu View and Summary Statistics. On the window that appears are reported mean, standard deviation, skewness and excess (over 3) kurtosis for the four variables. Copy/paste the table in your Word document.

Discuss the differences among the 4 assets in terms of expected return (remember that the returns are monthly), standard deviation, skewness and kurtosis. Based on estimates for skewness and kurtosis, do you suspect that the returns might have a non-normal distribution?

5. Based on the results in (4), test the null hypothesis that the HF and market returns have mean equal to zero against the alternative that they are positive. Clearly state the null hypothesis, test statistic, the distribution of the test statistic, and your decision to reject or not the null hypothesis. Use a 5% significance level.

6. Test also the null hypothesis that the mean of the Long/Short strategy return and the market return is equal against the alternative that they are different. Clearly state the null hypothesis, test statistic, the distribution of the test statistic, and your decision to reject or not the null hypothesis. Use a 1% significance level.

7. As in point (3), select the 4 variables we are considering and, in menu View, select Correlation Matrix. Again, copy/paste the results. Discuss the magnitude and sign of the sample correlations. Do they support the "graphical" discussion in point (2)?

8. Select one of the HF returns. Go to the menu Variable, then Frequency Plot and Against Normal

146_STATISTICAL ANALYSIS OF HEDGE FUNDS RETURNS2.png

What we are doing is to plot an histogram of the variables and the estimated normal density (given the sample mean and variance). Do the same for the other 2 HF returns. Discuss whether the histogram suggests that the HF returns are approximately normal; in particular, pay attention to the tails of the distribution and the center of the distribution (the top-right corner of the graph reports the mean and variance of the series).

Posted Date: 2/21/2013 6:38:56 AM | Location : United States







Related Discussions:- Statistical analysis of hedge funds returns, Assignment Help, Ask Question on Statistical analysis of hedge funds returns, Get Answer, Expert's Help, Statistical analysis of hedge funds returns Discussions

Write discussion on Statistical analysis of hedge funds returns
Your posts are moderated
Related Questions
What is F2 Test, These tests were based on the assumption that the samples were drawn from normally distributed populations, or more accurately that the sample means were normally


An instructor wants to determine which of his students are A students and which are B students (this is a graduate course, so clearly all the students are either A or B stu

office supplies on hand at year-end amounted to $100

What is meant by the full cost of a product? Many organizations use the expression top dollars to mean the complete creating or technology cost of a product. To this organiz

a)  The US Food and Drug Administration has veto power over the choice of drug names. In 2004, it used this power regularly, rejecting 36% of the names proposed by companies for re

Less than 5 yrs 22 5-10 18 10-20 5 20-30 4 More than 30 1

One way to use contiguous allocation of the disk and not suffer from holes is to compact the disk every time a file is removed. Since all files are contiguous, copying a file requi

VK Ltd a multi-product Company, furnishes you the following data relating to the year 2000 First Half of the year Second Half of the year Sales Rs. 45,000 Rs. 50,000 Total Co

writing a Introduction on Metaphor