Time series risk factors of hedge fund investment objectives

Abstract

In this thesis, I find eight common time series risk factors among all hedge fund investment objectives, including: equity market factor, equity size spread factor, bond credit spread factor, emerging market factor, equity trend following factor, Fama-French value factor, time series momentum factor and currency risk factor. The selected statistical model constructed from the eight risk factors provides higher adjusted R squared and lower pricing errors than Fung-Hsieh model. In addition, I find that small hedge funds outperform large funds with alpha spread of 3.43 percent annually.