Authors

• Szabolcs Blazsek(sblazsek@unav.es)
  Department of Business, University of Navarra
• Anna Downarowicz(anna.downarowicz@ie.edu)
  Department of Finance, Institute of business Business School

Abstract
We estimate and compare the forecasting performance of several dynamic models of returns of different hedge fund strategies. The conditional mean of return is an ARMA process while its conditional volatility is modeled according to the GARCH specification. In order to take into account the high level of risk of these strategies, we also consider a Markov switching structure of the parameters in both equations to capture jumps. Finally, the one-step-ahead out-of-sample forecast performance of different models is compared.

Classification JEL:C13, C15, G32

Keywords:Markov switching ARMA-GARCH, forecasting performance

Number of Pages:52

Creation Date:2008-11-28

Number:null/08