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Author

William Fung

Other affiliations: Paradigm, Wilmington University
Bio: William Fung is an academic researcher from London Business School. The author has contributed to research in topics: Hedge fund & Alternative beta. The author has an hindex of 29, co-authored 42 publications receiving 8404 citations. Previous affiliations of William Fung include Paradigm & Wilmington University.

Papers
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Journal ArticleDOI
TL;DR: This article found that hedge funds follow strategies that are dramatically different from mutual funds, and support the claim that these strategies are highly dynamic, and found five dominant investment styles in hedge funds, which when added to Sharpe's asset class factor model can provide an integrated framework for style analysis of both buy-and-hold and dynamic trading strategies.
Abstract: This article presents some new results on an unexplored dataset on hedge fund performance. The results indicate that hedge funds follow strategies that are dramatically different from mutual funds, and support the claim that these strategies are highly dynamic. The article finds five dominant investment styles in hedge funds, which when added to Sharpe’s (1992) asset class factor model can provide an integrated framework for style analysis of both buy-and-hold and dynamic trading strategies.

1,385 citations

Journal ArticleDOI
TL;DR: The authors used lookback straddles to model trend-following strategies, and showed that they can explain hedge fund's returns better than standard asset indices, and they can be useful in the design of performance benchmarks for trend following funds.
Abstract: Hedge fund strategies typically generate option-like returns. Linear-factor models using benchmark asset indices have difficulty explaining them. Following the suggestions in Glosten and Jagannathan (1994), this article shows how to model hedge fund returns by focusing on the popular “trend-following” strategy. We use lookback straddles to model trend-following strategies, and show that they can explain trend-following funds’ returns better than standard asset indices. Though standard straddles lead to similar empirical results, lookback straddles are theoretically closer to the concept of trend following. Our model should be useful in the design of performance benchmarks for trend-following funds.

1,290 citations

Journal ArticleDOI
TL;DR: The authors proposed a model of hedge fund returns that is similar to models based on arbitrage pricing theory, with dynamic risk-factor coefficients for diversified hedge fund portfolios, which can explain up to 80 percent of monthly return variations.
Abstract: Following a review of the data and methodological difficulties in applying conventional models used for traditional asset class indexes to hedge funds, this article argues against the conventional approach Instead, in an extension of previous work on asset-based style (ABS) factors, the article proposes a model of hedge fund returns that is similar to models based on arbitrage pricing theory, with dynamic risk-factor coefficients For diversified hedge fund portfolios (as proxied by indexes of hedge funds and funds of hedge funds), the seven ABS factors can explain up to 80 percent of monthly return variations Because ABS factors are directly observable from market prices, this model provides a standardized framework for identifying differences among major hedge fund indexes that is free of the biases inherent in hedge fund databases

1,045 citations

Journal ArticleDOI
TL;DR: This article used the investment experience of hedge fund investors to estimate the performance of hedge funds and used this information to measure aggregate hedge fund performance, based on the idea that hedge fund investor experience can be used to estimate hedge fund investment experience.
Abstract: It is well known that the pro forma performance of a sample of investment funds contains biases. These biases are documented in Brown, Goetzmann, Ibbotson, and Ross (1992) using mutual funds as subjects. The organization structure of hedge funds, as private and often offshore vehicles, makes data collection a much more onerous task, amplifying the impact of performance measurement biases. Theis paper reviews these biases in hedge funds. We also propose using funds-of-hedge funds to measure aggregate hedge fund performance, based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds.

901 citations

Posted Content
TL;DR: In this paper, the authors used a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004.
Abstract: We use a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004. While the average fund-of-funds delivers alpha only in the period between October 1998 and March 2000, a subset of funds-of-funds consistently delivers alpha. The alpha-producing funds are not as likely to liquidate as those that do not deliver alpha, and experience far greater and steadier capital inflows than their less fortunate counterparts. These capital inflows attenuate the ability of the alpha producers to continue to deliver alpha in the future.

506 citations


Cited by
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Journal ArticleDOI
TL;DR: In this article, the authors investigate whether financial openness leads to financial development after controlling for the level of legal development using a panel encompassing 108 countries over the period 1980 to 2000, and find that trade openness is a prerequisite for capital account liberalization while banking system development is a precondition for equity market development.

1,761 citations

Journal ArticleDOI
TL;DR: This article found that hedge funds follow strategies that are dramatically different from mutual funds, and support the claim that these strategies are highly dynamic, and found five dominant investment styles in hedge funds, which when added to Sharpe's asset class factor model can provide an integrated framework for style analysis of both buy-and-hold and dynamic trading strategies.
Abstract: This article presents some new results on an unexplored dataset on hedge fund performance. The results indicate that hedge funds follow strategies that are dramatically different from mutual funds, and support the claim that these strategies are highly dynamic. The article finds five dominant investment styles in hedge funds, which when added to Sharpe’s (1992) asset class factor model can provide an integrated framework for style analysis of both buy-and-hold and dynamic trading strategies.

1,385 citations

Journal ArticleDOI
TL;DR: In this article, the authors used a mean-conditional value-at-risk framework to evaluate the risk of hedge funds using buy-and-hold and option-based strategies and found that a large number of hedge fund strategies exhibit payoffs similar to a short position in a put option on the market index.
Abstract: This article characterizes the systematic risk exposures of hedge funds using buy-and-hold and option-based strategies. Our results show that a large number of equity-oriented hedge fund strategies exhibit payoffs resembling a short position in a put option on the market index and therefore bear significant left-tail risk, risk that is ignored by the commonly used mean-variance framework. Using a mean-conditional value-at-risk framework, we demonstrate the extent to which the mean-variance framework underestimates the tail risk. Finally, working with the systematic risk exposures of hedge funds, we show that their recent performance appears significantly better than their long-run performance. It is well accepted that the world of financial securities is a multifactor world consisting of different risk factors, each associated with its own factor risk premium, and that no single investment strategy can span the entire ‘‘risk factor space.’’ Therefore investors wishing to earn risk premia associated with different risk factors need to employ different kinds of investment strategies. Sophisticated investors, like endowments and pension funds, seem to have recognized this fact as their portfolios consist

1,332 citations

Journal ArticleDOI
TL;DR: The authors used lookback straddles to model trend-following strategies, and showed that they can explain hedge fund's returns better than standard asset indices, and they can be useful in the design of performance benchmarks for trend following funds.
Abstract: Hedge fund strategies typically generate option-like returns. Linear-factor models using benchmark asset indices have difficulty explaining them. Following the suggestions in Glosten and Jagannathan (1994), this article shows how to model hedge fund returns by focusing on the popular “trend-following” strategy. We use lookback straddles to model trend-following strategies, and show that they can explain trend-following funds’ returns better than standard asset indices. Though standard straddles lead to similar empirical results, lookback straddles are theoretically closer to the concept of trend following. Our model should be useful in the design of performance benchmarks for trend-following funds.

1,290 citations

Journal ArticleDOI
TL;DR: In this article, the authors proposed several econometric measures of connectedness based on principal component analysis and Granger-causality networks, and applied them to the monthly returns of hedge funds, banks, broker/dealers, and insurance companies.

1,277 citations