DYNAMIC ASSET ALLOCATION STRATEGIES ACROSS HEDGE FUND INDICES

The performance of various asset allocation strategies across hedge fund indices using alternative static as well as dynamic methods that are based on forecasts of conditional volatility is examined. Daily rebalanced dynamic portfolios are examined for the three main sub-indices of Standard & Poor’s Hedge Fund Index. Out-of-sample results are also shown for nine Credit Suisse First Boston / Tremont hedge fund indices Time varying volatility and volatility clustering characterizes most hedge fund indices. Using forecasts of next-period volatility based on time-varying procedure generally improves the risk-return profile of the portfolio. All of the dynamic hedge fund index portfolios largely outperform the passive S&P 500 index, both on an expected return and risk-adjusted return basis