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2012/1 (Vol. 33)

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This paper reviews the literature on Hedge Fund performance attribution. Hedge Funds follow very dynamic and leveraged strategies and invest massively in derivatives and illiquid securities. Consequently, these funds present linear but also non-linear relationships with market indexes. The article investigates the risk factors that have been used to capture the linear and non-linear comovements of Hedge Fund returns with passive indexes. The review especially discusses the significance of adding option-like or distribution-based factors to benchmark models. It moreover supports the evidence that multi-moment risk premiums could considerably improve the models traditionally used to evaluate Hedge Funds.


  1. Introduction
  2. Factor models
  3. Hedge Funds returns
    1. Hedge Fund Return Payoffs
    2. Higher-Order Moments in the Hedge Fund Return Distributions
    3. Impact of Higher-Moments on the Hedge Fund Return Generating Process
  4. Distribution-based risk factors
    1. Mimicking Portfolios
    2. Risk-Neutral Higher-Moments
    3. Remark
  5. Option-based risk factors
    1. Puts and Calls in the US Equity Markets
    2. Extensions to Other Markets and to Other Option-like Strategies
    3. Replication of Hedge Fund Return Properties with Options
    4. Remark
  6. Systematic trading strategies per Hedge Fund style
  7. Hedge Fund non-market risks
  8. Summary and extensions

To cite this article

Marie Lambert, “ Hedge Fund Market Risk Exposures: A Survey* ”, Finance 1/2012 (Vol. 33) , p. 39-78
URL : www.cairn.info/revue-finance-2012-1-page-39.htm.

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