Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2011-05-26 Number: 11-084/2/DSF 23 Author-Name: Antonio Di Cesare Author-Workplace-Name: Bank of Italy Author-Name: Philip A. Stork Author-Workplace-Name: VU University Amsterdam Author-Name: Casper G. de Vries Author-Workplace-Name: Erasmus University Rotterdam Title: Risk Measures for Autocorrelated Hedge Fund Returns Abstract: This discussion paper led to a publication in the 'Journal of Financial Econometrics', 2015, 13(4), 868-895.
Standard risk metrics tend to underestimate the true risks of hedge funds becauseof serial correlation in the reported returns. Getmansky et al. (2004) derive mean,variance, Sharpe ratio, and beta formulae adjusted for serial correlation. Followingtheir lead, adjusted downside and global measures of individual and systemic risksare derived. We distinguish between normally and fat tailed distributed returnsand show that adjustment is particularly relevant for downside risk measures in thecase of fat tails. A hedge fund case study reveals that the unadjusted risk measuresconsiderably underestimate the true extent of individual and systemic risks. Classification-JEL: G12; G23; G28 Keywords: Hedge funds; Serial correlation; Systemic risk; VaR; Pareto distribution. File-Url: http://papers.tinbergen.nl/11084.pdf File-Format: application/pdf File-Size: 642044 bytes Handle: RePEc:tin:wpaper:20110084