The data are daily returns to various hedge funds for period 1 April 2003 to 28 May
Question:
The data are daily returns to various hedge funds for period 1 April 2003 to 28 May 2010 ( \(T=1869)\) obtained from Hedge Fund Research, Inc. ("HFR").
(a) Estimate a bivariate DCC model for Merger hedge fund returns and returns to the S&P500 index. Compute and plot an estimate of the time varying correlation between the Merger fund returns and the market returns. Comment on your result.
(b) Repeat part (a) for the other six hedge funds. Discuss how successful the hedge funds were in minimising exposure to systematic risk from the market during the global financial crisis from mid 2007 to the end of 2009?
(c) Now estimate a DCC model which deals with all 7 hedge fund returns (Convertible, Distressed, Equity Event, Macro, Merger and Neutral). Comment on whether or not a DECO model would be appropriate for this system.
Step by Step Answer:
Financial Econometric Modeling
ISBN: 9781633844605
1st Edition
Authors: Stan Hurn, Vance L. Martin, Jun Yu, Peter C.B. Phillips