Stochastic dominance analysis of Asian hedge funds

Pacific Basin Finance Journal

Volumn 16, Issue 3, 2008, Pages 204-223

  Wong, Wing Keung ^a,d   Phoon, Kok Fai ^b   Lean, Hooi Hooi ^c  

^a HONG KONG BAPTIST UNIVERSITY   (Hong Kong)

^b MONASH UNIVERSITY   (Australia)

^c SCHOOL OF PHYSICS   (Malaysia)

^d NATIONAL UNIVERSITY OF SINGAPORE   (Singapore)

Author keywords

Hedge funds; Performance measurement; Risk averse investors; Stochastic dominance

Indexed keywords

EID: 47049119115     PISSN: 0927538X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.pacfin.2007.07.001     Document Type: Article

References (78)

1. Ackerman C., McEnally R., and Ravenscraft D. The performance of hedge funds: risk, return and incentive. Journal of Finance 54 (1999) 833-874
2. Agarwal V., and Naik N.Y. Risk and portfolio decisions involving hedge funds. Review of Financial Studies 17 (2004) 63-98
3. Alexander G.J., and Baptista A.M. Economic implications of using mean-VaR model for portfolio selection: a comparison with mean-variance analysis. Journal of Economic and Dynamics Control 26 (2002) 1159-1193
4. Alexander G.J., and Baptista A.M. Comparison of VaR and CVaR constraints on portfolio selection with the mean-variance model. Management Science 50 (2004) 1261-1273
5. Amenc N., Bied S.E., and Martellini L. Predictability in hedge fund returns. Financial Analysts Journal 59 (2003) 32-46
6. Anderson G. Nonparametric tests of stochastic dominance in income distributions. Econometrica 64 (1996) 1183-1193
7. Anderson G. Toward an empirical analysis of polarization. Journal of Econometrics 122 (2004) 1-26
8. Barrett G.F., and Donald S.G. Consistent tests for stochastic dominance. Econometrica 71 (2003) 71-104
9. Bernard V.L., and Seyhun H.N. Does post-earnings-announcement drift in stock prices reflect a market inefficiency? A stochastic dominance approach. Review of Quantitative Finance and Accounting 9 (1997) 17-34
10. Bishop J.A., Formly J.P., and Thistle P.D. Convergence of the South and Non-South income distributions. American Economic Review 82 (1992) 262-272
11. Brealey R.A., and Kaplanis E. Hedge funds and financial stability: an analysis of their factor exposures. International Finance 4 (2001) 161-187
12. Brooks C., and Kat H.M. The statistical properties of hedge fund index returns and their implications for investors. Journal of Alternative Investments 5 (2002) 26-44
13. Brown S.J., Goetzmann W.N., and Park J. Careers and survival: competition and risk in the hedge fund and CTA industry. Journal of Finance 56 (2001) 1869-1886
14. Chan K., Hameed A., and Tong W. Profitability of momentum strategies in the international equity markets. Journal of Financial and Quantitative Analysis 35 2 (2000) 153-172
15. Davidson R., and Duclos J.Y. Statistical inference for stochastic dominance and for the measurement of poverty and inequality. Econometrica 68 (2000) 1435-1464
16. Edwards F., and Caglayan M.O. Hedge fund performance and manager skill. Journal of Futures Markets 21 (2001) 1003-1028
17. Falk H., and Levy H. Market reaction to quarterly earnings' announcements: a stochastic dominance based test of market efficiency. Management Science 35 (1989) 425-446
18. Feldstein M.S. Mean variance analysis in the theory of liquidity preference and portfolio selection. Review of Economics Studies 36 (1969) 5-12
19. Fong W.M., Wong W.K., and Lean H.H. International momentum strategies: a stochastic dominance approach. Journal of Financial Markets 8 (2005) 89-109
20. Fung W., and Hsieh D.A. Empirical characteristics of dynamic trading strategies: the case of hedge funds. Review of Financial Studies 10 (1997) 275-302
21. Fung W., and Hsieh D.A. A primer on hedge funds. Journal of Empirical Finance 6 (1999) 309-331
22. Fung W., and Hsieh D.A. Is mean-variance analysis applicable to hedge funds?. Economic Letters 62 (1999) 53-58
23. Fung W., and Hsieh D.A. Performance characteristics of hedge funds and commodity funds: natural vs. spurious biases. Journal of Financial and Quantitative Analysis 35 (2000) 291-307
24. Gasbarro D., Wong W.K., and Zumwalt J.K. Stochastic dominance analysis of iShares. European Journal of Finance 13 (2007) 89-101
25. Getmansky M., Lo A.W., and Makarov I. An econometric model of serial correlation and illiquidity in hedge fund returns. Journal of Financial Economics 74 (2004) 529-609
26. Gregoriou G.N., Rouah F., and Sedzro K. On the market timing of hedge fund managers. Journal of Wealth Management 5 (2002) 26-38
27. Gregoriou G.N., Sedzro K., and Zhu J. Hedge fund performance appraisal using data envelopment analysis. European Journal of Operational Research 164 (2005) 555-571
28. Gupta A., and Liang B. Do hedge funds have enough capital? A Value-at-Risk approach. Journal of Financial Economics 77 (2005) 219-253
29. Hanoch G., and Levy H. The efficiency analysis of choices involving risk. Review of Economic Studies 36 (1969) 335-346
30. Jarrow R. The relationship between arbitrage and first order stochastic dominance. Journal of Finance 41 (1986) 915-921
31. Jegadeesh N., and Titman S. Returns to buying winners and selling losers: implications for stock market efficiency. Journal of Finance 48 (1993) 65-91
32. Jensen M.C. Risk, the pricing of capital assets and the evaluation of investment portfolios. Journal of Business 42 (1969) 167-247
33. Jorion P. Value-at-Risk: The New Benchmark for Managing Financial Risk (2000), McGraw-Hill, New York
34. Kat H.M. 10 things that investors should know about hedge funds. Journal of Wealth Management 5 (2003) 72-81
35. Kat H.M., and Menexe F. Persistence in hedge fund performance: the true value of a track record. Journal of Alternative Investments 5 (2003) 62-72
36. Kaur A., Rao B.L., and Singh H. Testing for second-order stochastic dominance of two distributions. Econometric Theory 10 (1994) 849-866
37. Kjetsaa R., and Kieff M. Stochastic dominance analysis of equity mutual fund performance. American Business Review 21 (2003) 1-8
38. Klecan L., McFadden R., and McFadden D. A Robust Test for Stochastic Dominance. Working Paper (1991), MIT & Cornerstone Research
39. Kooli M., Amvella S.P., and Gueyie J.P. Hedge funds in a portfolio context: a mean-modified value at risk framework. Derivatives Use, Trading & Regulation 10 4 (2005) 373-383
40. Larsen G.A., and Resnick B.G. A performance comparison between cross-sectional stochastic dominance and traditional event study methodologies. Review of Quantitative Finance and Accounting 12 (1999) 103-112
41. Lavinio S. The Hedge Fund Handbook (2000), McGraw-Hill, New York
42. Lean, H.H., Wong, W.K., Zhang, X., in press. Size and power of some stochastic dominance tests, Journal of Statistical Computation and Simulation.
43. Lee D., Lwi S., and Phoon K.F. Equitable performance fee for hedge funds. Journal of Investing 13 (2004) 31-41
44. Lee D., Phoon K.F., and Wong C.Y. Moments analysis in risk and performance measurement. Journal of Wealth Management 9 (2006) 54-65
45. Leitner J. A short note on second-order stochastic dominance preserving coherent risk measures. Mathematical Finance 15 4 (2005) 649-651
46. Leshno M., and Levy H. Preferred by "All" and preferred by "Most" decision makers: almost stochastic dominance. Management Science 48 (2002) 1074-1085
47. Levy H. Stochastic dominance and expected utility: Survey and analysis. Management Science 38 (1992) 555-593
48. Levy H. Stochastic dominance: Investment decision making under uncertainty (1998), Kluwer, Boston
49. Levy H., and Sarnat M. Alternative efficiency criteria: an empirical analysis. Journal of Finance 25 (1970) 1153-1158
50. Lhabitant F.S. Assessing Market Risk for Hedge Funds and Hedge Fund Portfolios. Working Paper (2001), University of Lausanne
51. Liang B. On the performance of hedge funds. Financial Analysts Journal 55 (1999) 72-85
52. Linton O., Maasoumi E., and Whang Y.J. Consistent testing for stochastic dominance under general sampling schemes. Review of Economic Studies 72 (2005) 735-765
53. Ma C., and Wong W.K. Stochastic dominance and risk measure: A decision-theoretic foundation for VaR and C-VaR. Social Science Research Network Working Paper no. 907272 (2006)
54. Markowitz H.M. Portfolio selection. Journal of Finance 7 (1952) 77-91
55. Markowitz H.M. Portfolio selection: Efficient diversification of investments (1991), Blackwell Publishers, London
56. McFadden D. Testing for stochastic dominance. In: Fomby T., and Seo T. (Eds). Studies in the Economics of Uncertainty (1989), Springer Verlag, New York 113-132
57. Meyer J. Two-moment decision models and expected utility maximization. American Economic Review 77 (1987) 421-430
58. Ogryczak W., and Ruszcznski A. Dual stochastic dominance and related mean-risk models. SIAM Journal of Optimization 13 (2002) 60-78
59. Porter R.B. An empirical comparison of stochastic dominance and mean-variance portfolio choice criteria. Journal of Financial and Quantitative Analysis 8 (1973) 587-608
60. Post T., and Levy H. Does risk seeking drive stock prices? A stochastic dominance of aggregate investor preferences and beliefs. Review of Financial Studies 18 (2005) 925-953
61. Post, T. and Versijp, P., in press. Multivariate tests for stochastic dominance efficiency of a given portfolio, Journal of Financial and Quantitative Analysis.
62. Richmond J. A general method for constructing simultaneous confidence intervals. Journal of the American Statistical Association 77 (1982) 455-460
63. Rockafellar R.T., and Uryasev S.P. Optimization of conditional Value-at-Risk. Journal of Risk 2 (2000) 21-42
64. Rockafellar R.T., and Uryasev S.P. Conditional Value-at-Risk for general loss distributions. Journal of Banking and Finance 26 (2002) 1443-1471
65. Seyhun H.N. Can omitted risk factors explain the January effect. A stochastic dominance approach. Journal of Financial and Quantitative Analysis 28 (1993) 195-212
66. Sharpe W.F. Capital asset prices: theory of market equilibrium under conditions of risk. Journal of Finance 19 (1964) 442-452
67. Stoline M.R., and Ury H.K. Tables of the studentized maximum modulus distribution and an application to multiple comparisons among means. Technometrics 21 (1979) 87-93
68. Taylor W.R., and Yoder J.A. Load and no-load mutual fund dynamics during the 1987 market crash: a stochastic dominance analysis. Journal of Economics and Finance 23 (1999) 255-265
69. Tobin J. Liquidity preference and behavior towards risk. Review of Economic Studies 25 (1958) 65-86
70. Treynor J.L. How to rate management of investment funds. Harvard Business Review 43 (1965) 63-75
71. Tse Y.K., and Zhang X. A Monte Carlo investigation of some tests for stochastic dominance. Journal of Statistical Computation and Simulation 74 (2004) 361-378
72. Vinod H.D. Ranking mutual funds using unconventional utility theory and stochastic dominance. Journal of Empirical Finance 11 (2004) 353-377
73. Von-Neumann J., and Morgenstern O. Theory of Games and Economic Behavior (1944), Princeton University Press, Princeton N.J.
74. Wei S., and Zhang C. Statistical and economic significance of stock return predictability: a mean-variance analysis. Journal of Multinational Financial Management 13 (2003) 443-463
75. Wong W.K. Stochastic dominance and mean-variance measures of profit and loss for business planning and investment. European Journal of Operational Research 182 (2007) 829-843
76. Wong, W.K. and Chan, R., in press. Markowitz and prospect stochastic dominances, Annals of Finance.
77. Wong W.K., and Li C.K. A note on convex stochastic dominance theory. Economics Letters 62 (1999) 293-300
78. Wong, W.K. and Ma, C., in press. Preferences over location-scale family, Economic Theory.