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Data Sourcing, Statistical Processing and Time Series Analysis. Presented at EDAMBA summer school, Soréze (France) 23 July – 27 July 2009. An Example from Research into Hedge Fund Investments. ‘In the business world, the rearview mirror is always clearer than the windshield’
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Data Sourcing, Statistical Processing and Time Series Analysis Presented at EDAMBA summer school, Soréze (France) 23 July – 27 July 2009 • An Example from Research into Hedge Fund Investments
‘In the business world, the rearview mirror is always clearer than the windshield’ - Warren Buffett -
Research Purpose • Developing accurate parametric pricing models for hedge funds and fund of hedge funds • Accounting for the special statistical properties of alternative investment funds • Providing practitioners and statisticians with a framework to assess, categorize and predict hedge fund investments
Research Approach • Research Philosophy • Research Approach • Data Sourcing Logical-positivistic, deductive research: Postulation of hypotheses that are tested via standard statistical procedures Empirical analysis: Interpreting the quality of pricing models on the basis of historical data External secondary data: Historic time series adjusted for data-bias effects
Data Sourcing • DATA POOL
Data Treatment • FACTOR ANALYSIS • DATA POOL • MODEL BUILDING • STATISTICAL CLUSTERING
Data Import Access Database Excel Pivot table report
Database Management • Avoiding duplicate entries • Cross-referencing data from various sources • Combining and aggregating different databases • Efficient storage due to relational data management • Queries allow for retrieval/display of specific data • Linked-in with Microsoft VBA and Excel (data displayable as Pivot table reports) • Searching for specific entries via SQL
Data Bias • Survivorship • Self-Selection • Database • Instant History • Look-ahead Inclusion of graveyard funds Multiple databases Rolling-window observation / Incubation period
Statistical tests for TSA • Regression Statistics (Alpha, Average Error term, Information Ratio) • Normality (Chi-squared, JarqueBera) • Goodness of fit, phase-locking and collinearity (Akaike Information Criterion, Hannan-Schwartz) • Serial Correlation (Durbin-Watson, Portmanteau) • Non-stationarity (unit root)
Literature Review • Hedge Fund Linear Pricing Models • Sharpe Factor Model (Sharpe, 1992) • Constrained Regression (Otten, 2000) • Fama-French Factor Model (Fama, 1992) • Factor Component Analysis (Fung, 1997) • Simulation of Trading component (lookback straddle)