01 Oct Learning From Quest Partners' "Hedge Fund Index Replication"

The paper proposed a futures based replicator for the Credit Suisse Hedge Fund Index. Timing the individual four factors used in the replicator improved risk adjusted returns.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.

While the paper proposed a futures based replicator for the Credit Suisse Hedge Fund index and explained the construct and benefits of the replicator, our focus is on the timing of the four factors used.

Using a common moving average timing method on individual factors, risk is reduced while returns improve slightly. This is shown as “Model 3” in chart reproduced below.

Source: Quest Partners

Research Paper: Hedge Fund Index Replication – A Numerical Approach using Futures

Authors: Nigol Koulajian, Paul Czkwianianc and Nan Zhou

Company: Quest Partners