Testing non-linear dependence in the Hedge Fund industry

• Autores: Javier Mencía
• Localización: Documentos de trabajo - Banco de España, ISSN 0213-2710, Nº 7, 2010, págs. 9-44
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • This paper proposes a parsimonious approach to test non-linear dependence on the conditional mean and variance of hedge funds with respect to several market factors. My approach introduces non-linear dependence by means of empirically relevant polynomial functions of the factors. For comparison purposes, I also consider multifactor extensions of tests based on piecewise linear alternatives. I apply these tests to a database of monthly returns on 1,071 hedge funds. I fi nd that non-linear dependence on the mean is highly sensitive to the factors that I consider. However, I obtain a much stronger evidence of non-linear dependence on the conditional variance