employment and output effects of observed and unobserved monetary growth the purpose of this paper is to present new evidence on the business cycle effects of contemporaneously observed and unobserved money growth the analysis builds on previous work in two ways first and most important in this paper the output and employment effects of unobserved money growth are estimated without maintained hypotheses about other sources of monetary nonneutrality this approach seems appropriate because the relation between money and business cycles is acknowledged to be not well understood for example see the discussion in grossman 1983 and barro 1984 earlier findings of neutral unobserved money growth involved test procedures that maintained either the neutrality of anticipated money growth barro and hercowitz 1980 or the neutrality of observed money growth boschen and grossman 1982 however the empirical measurement and neutrality of anticipated money growth are unsettled issues see mishkin 1982 while the empirical tests by boschen and grossman 1982 reject the neutrality of observed money growth since incomplete monetary information is a central aspect of many business cycle theories it is of considerable interest to estimate the economic impact of contemporaneously unobserved money growth without placing undue restnctions on the moneylbusiness cycle relation this approach also makes clear that tests of monetary nonneutrality due to incomplete information involve a comparison of coefficients on observed and unobserved monetary growth rather than simply a finding of positive significant coefficients on unobserved money growth

hedge funds the good the bad and the lucky we develop an estimation approach based on a modified expectation maximization em algorithm and a mixture of normal distributions associated with skill groups to assess performance in hedge funds by allowing luck to affect both skilled and unskilled funds we estimate the number of skill groups the fraction of funds from each group and the mean and variability of skill within each group for each individual fund we propose a performance measure combining the fund s estimated alpha with the cross sectional distribution of fund skill in out of sample tests an investment strategy using our performance measure outperforms those using estimated alpha and t statistic

the effect of investment constraints on hedge fund investor returns this paper examines the effect of real world investor level investment constraints including several that have not been studied before on hedge fund performance and its persistence using a large consolidated database we demonstrate that hedge fund performance persistence is significantly reduced when rebalancing rules reflect fund size restrictions and liquidity constraints but remains statistically significant at higher rebalancing frequencies hypothetical investor portfolios that incorporate additional minimum diversification constraints minimum investment requirements and focus on open funds suggest that the performance and its persistence documented in earlier studies of hedge funds is not easily exploitable especially by large investors

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

endogenous land use and the ricardian valuation of climate change the ricardian technique uses cross sectional variation in the capitalized value of climate in land to infer the agricultural costs or benefits of dynamic climate change while a practical approach for predicting the consequences of global warming with readily available data it may yield biased results when land use decisions depend on the climate attributes being valued and when land has unobserved attributes that differ with the use to which it is put this paper illustrates the conditions under which such a bias will occur describes an empirical model that corrects for it and estimates that model with agricultural census data from brazil the approach moreover allows constraints on adjustment to be explicitly incorporated into the ricardian framework relaxing one of that technique s most conspicuous assumptions

the risk in hedge fund strategies theory and evidence from trend followers hedge fund strategies typically generate option like returns linear factor models using benchmark asset indices have difficulty explaining them following the suggestions in glosten and jagannathan 1994 this article shows how to model hedge fund returns by focusing on the popular trend following strategy we use lookback straddles to model trend following strategies and show that they can explain trend following funds returns better than standard asset indices though standard straddles lead to similar empirical results lookback straddles are theoretically closer to the concept of trend following our model should be useful in the design of performance benchmarks for trend following funds

hedge funds risk and return from a database that is relatively free of bias this article provides measures of the returns of hedge funds and of the distinctly nonnormal characteristics of the data the results include risk adjusted measures of performance and tests of the degree to which hedge funds live up to their claim of market neutrality the substantial attrition of hedge funds is examined the determinants of hedge fund demise are analyzed and results of tests of return persistence are presented the conclusion is that hedge funds are riskier and provide lower returns than is commonly supposed

policy impacts under rational expectations abstract this paper re examines for the u s the validity of the macro rational expectations mre hypothesis in contrast to most previous studies in this area the paper a considers the potential real effects of both monetary and fiscal policies b allows for possible endogeneity of these policies and c uses a joint non linear estimation methodology to distangle the hypothesis of rationality from that of neutrality the empirical results reject the joint mre hypothesis for both policies the results also indicate that policy non neutrality is the culprit behind such rejection this evidence offers further empirical support for macro rational expectations models where monetary and fiscal policies can due to some rigidities play a key role in stabilizing the real economy

conversations among competitors conversation is a central part of economic life a wide range of information gets passed from one person to another via word of mouth communication and a number of authors argue that the nature of connections between people i e the structure of social networks can have a

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

hedge fund benchmarks information content and biases we discuss the information content and potential measurement biases in hedge fund benchmarks hedge fund indexes built from databases of individual hedge funds inherit the measurement biases in the databases in addition broad based indexes mask the diversity of individual hedge fund return characteristics consequently these indexes provide incomplete information to investors seeking diversification from traditional asset classes through the use of hedge funds the approach to constructing hedge fund benchmarks we propose is based on the simple idea that the most direct way to measure hedge fund performance is to observe the investment experience of hedge fund investors themselves the funds of hedge funds fofs in terms of measurement biases returns of fofs can deliver a cleaner estimate of the investment experience of hedge fund investors than the traditional approach in terms of risk characteristics indexes of fofs are more indicative of the demand side dynamics driven by hedge fund investors p

the statistics of sharpe ratios the building blocks of the sharpe ratio expected returns and volatilities are unknown quantities that must be estimated statistically and are therefore subject to estimation error this raises the natural question how accurately are sharpe ratios measured to address this question i derive explicit expressions for the statistical distribution of the sharpe ratio using standard asymptotic theory under several sets of assumptions for the return generating process independently and identically distributed returns stationary returns and with time aggregation i show that monthly sharpe ratios cannot be annualized by multiplying by 12 except under very special circumstances and i derive the correct method of conversion in the general case of stationary returns in an illustrative empirical example of mutual funds and hedge funds i find that the annual sharpe ratio for a hedge fund can be overstated by as much as 65 percent because of the presence of serial correlation in monthly returns and once this

multi period performance persistence analysis of hedge funds since hedge funds specify significant lock up periods we investigate persistence in the performance of hedge funds using a multi period framework in which the likelihood of observing persistence by chance is lower than in the traditional two period framework under the null hypothesis of no manager skill no persistence the theoretical distribution of observing wins or losses follows a binormial distribution we test this hypothesis using the traditional two period framework and compare the findings with the results obtained using our multi period framework we examine whether persistence is sensitive to the length of return measurement intervals by using quarterly half yearly and yearly returns we find maximum persistence at the quarterly horizon indicating that presistence among hedge fund managers is short term in nature

only winners in tough times repeat hedge fund performance persistence over different market conditions we provide novel evidence that hedge fund performance is persistent following weak hedge fund markets but is not persistent following strong markets specifically we construct two performance measures downsidereturns and upsidereturns conditioned on the level of overall hedge fund sector returns after adjusting for risks funds in the highest downsidereturns quintile outperform funds in the lowest quintile by about 7 in the subsequent year whereas funds with better upsidereturns do not outperform subsequently the downsidereturns can predict future fund performance over a horizon as long as 3 years for both winners and losers and for funds with few share restrictions

economic integration and political disintegration in a world of trade restrictions large countries enjoy economic benefits because political boundaries determine the size of the market under free trade and global markets even relatively small cultural linguistic or ethnic groups can benefit from forming small homogeneous political jurisdictions this paper provides a formal model of the relationship between openness and the equilibrium number and size of countries and successfully tests two implications of the model firstly the economic benefits of country size are mediated by the degree of openness to trade secondly the history of nation state creations and secessions is influenced by the trade regime

zero r 2hedge funds and market neutrality factor models yield an r 2 insignificantly different from 0 for one third of hedge funds in a broad sample these funds illustrate the concept of market neutrality and feature lower volatilities higher sharpe ratios and higher alphas than other funds indicating that they provide a successful alternative investment however large portfolios of zero r 2 funds contain fully half the volatility of portfolios of other funds suggesting that they feature substantial systematic risk furthermore these funds display an increased probability of failure even after controlling for idiosyncratic volatility these results indicate the presence of an omitted factor that exposes investors to significant downside risk

the road less traveled strategy distinctiveness and hedge fund performance we investigate whether skilled hedge fund managers are more likely to pursue unique investment strategies that result in superior performance we propose a measure of the distinctiveness of a fund s investment strategy based on historical fund return data we call the measure the strategy distinctiveness index sdi we document substantial cross sectional variations as well as strong persistence in sdi our main result indicates that on average a higher sdi is associated with better subsequent performance after adjusting for risk funds in the highest sdi quintile outperform funds in the lowest quintile by 3 5 in the subsequent year the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the role of heterogeneity in asset pricing the effect of a clustering approach in this article we use a novel clustering approach to study the role of heterogeneity in asset pricing we present evidence that the equity premium is consistent with a stochastic discount factor sdf calculated as the average of the household clusters intertemporal marginal rates of substitution in the 1984 2002 period the result is driven by the skewness of the cluster based cross sectional distribution of consumption growth but cannot be explained by the cross sectional variance and mean alone we find that nine clusters are sufficient to explain the equity premium with relative risk aversion coefficient equal to six the result is robust to various averaging schemes of cluster based consumption growth used to construct the sdf lastly the analysis reveals that standard approximation schemes of the sdf using individual household data produce unreliable results implying a negative sdf

do hedge funds deliver alpha a bayesian and bootstrap analysis abstract using a robust bootstrap procedure we find that top hedge fund performance cannot be explained by luck and hedge fund performance persists at annual horizons moreover we show that bayesian measures which help overcome the short sample problem inherent in hedge fund returns lead to superior performance predictability sorting on bayesian alphas relative to ols alphas yields a 5 5 per year increase in the alpha of the spread between the top and bottom hedge fund deciles our results are robust and relevant to investors as they are neither confined to small funds nor driven by incubation bias backfill bias or serial correlation

performance characteristics of hedge funds and commodity funds natural vs spurious biases it is well known that the pro forma performance of a sample of investment funds contains biases these biases are documented in brown goetzmann ibbotson and ross 1992 using mutual funds as subjects the organization structure of hedge funds as private and often offshore vehicles makes data collection a much more onerous task amplifying the impact of performance measurement biases theis paper reviews these biases in hedge funds we also propose using funds of hedge funds to measure aggregate hedge fund performance based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

the information content of weekly money supply announcements this paper analyzes the information content of weekly money supply announcements and the use of this information in the market determination of interest rates a short term rational expectations model of the financial market is constructed which incorporates the reaction of the federal reserve to deviations from target money supply and provides a context for analyzing the impact of announcements in the model the federal reserve attempts to maintain target growth rates in the money supply by compensating for past deviations from target announcements which contain an unanticipated movement in the money supply lead the public to expect that the federal reserve will change the rate of growth in the short run to compensate the revision of expectations about future short term money supply leads the public to revise their expectations about short term interest rates the implications of the model are empirically tested using data from a survey of expected changes in the money supply and u s treasury bill data the results support the implications of the model that is weekly money supply announcements do contain new information for the market determination of interest rates and it is only the unanticipated component of the announcement which is important

the impact of global warming on agriculture a ricardian analysis comment the paper assesses the ricardian analysis of the impact of global warming on agriculture and the significance of the ricardian approach to estimating adjustment costs