We develop a flexible simulation-based optimization (SBO) method for the construction of optimal portfolios including hedge funds and other types of alternative investments. This method takes into account the skew and kurtosis of asset returns, the time series structure of asset returns, and the asymmetric nature of investor preferences for gains versus losses. Johnson (1949) translation is use...

Consistent with Protestants (Catholics) being more (less) risk-averse than the general population, we find that mutual funds located in regions with low Protestant (or high Catholic) population have higher total and idiosyncratic return volatilities. These higher volatilities are driven by portfolio under-diversification and aggressive interim trading, rather than overweighting risky (local) st...

Maximizing the profit and minimizing the loss notwithstanding the trend of the market is always desirable in any investment strategy. The present research develops an investment strategy, which has been verified effective in the real world, by employing self-organizing map neural network for mutual funds and tracking the trends of stock market indices according to macro-economy indicators, weig...

We investigate the effect of scale on performance in the active money management industry. We first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performance benchmarks. We then explore a number of potential explanations for this relationship. This association is most pronounced among funds that have to inve...

We explore the effective gain or loss in alpha from the point of view of the investor due to the volatility of a fund and its correlations to other asset classes. Fund managers and investors can be guided by this to increase the utility that is ultimately delivered to the investor. In this analysis of investor utility the Sharpe ratio is shown to be misleading and the tracking error has no role...

Mutual fund returns strongly persist over multi-year periods—that is the central finding of this paper. Further, consumer and fund manager behavior both play a large role in explaining these longterm continuation patterns—consumers invest heavily in last-year’s winning funds, and managers of these winners invest these inflows in momentum stocks to continue to outperform other funds for at least...

We propose a methodology for estimating the risk of portfolios that exhibit nonlinear dependence on the risk driving factors and have scarce observations, which is typical for portfolios of investments in hedge funds. The methodology consists of two steps: first, regressing the portfolio return on nonlinear functions of each single risk driving factor and second, merging together the obtained e...

This contribution introduces new frontier models to rate mutual funds that can simultaneously handle multiple moments and times. These are empirically applied hedge fund data, since this category of is known be subject non-normal return distributions. We define a simple buy-and-hold backtesting strategy test for the impact times separately jointly. The empirical results demonstrate proposed per...

Maximizing the profit and minimizing the loss notwithstanding the trend of the market is always desirable in any investment strategy. The present research develops an investment strategy, which has been verified effective in the real world, by employing self-organizing map neural network for mutual funds tracking the trends of stock market indices according to macroeconomics indicators and weig...