Seven factors that capture most of hedge funds' returns
Ernie Chan (noreply@blogger.com)
The Economist magazine just published an article that talked about "synthetic" hedge funds, or replicating hedge fund returns using factor models. The original research cited can be found here . (For those of you who want a primer on factor models, I have written an article on this topic previously.) The seven factors are (are you ready?): 1) excess return on the S&P 500 index; 2) a small minus big factor constructed as the difference of the Wilshire small and large capitalization stock indices;