alphaTesting | R Documentation |
Function which performs the testing of the difference of alpha outperformance ratios.
alphaTesting(x, y, factors = NULL, control = list(), screen_beta = FALSE)
x |
Vector (of length |
y |
Vector (of length |
factors |
Matrix |
control |
Control parameters (see *Details*). |
screen_beta |
Boolean to screen all factors' coefficients (beta).
Default: |
The alpha measure (Treynor and Black 1973, Carhart 1997, Fung and Hsieh 2004) is one industry standard for measuring the absolute risk adjusted performance of hedge funds. This function performs the testing of alpha outperformance ratio difference for two funds.
For the testing, only the intersection of non-NA
observations for the
two funds are used.
The argument control
is a list that can supply any of the following
components:
'hac'
Heteroscedastic-autocorrelation consistent
standard errors. Default: hac = FALSE
.
A list with the following components:
n
: Number of non-NA
concordant observations.
alpha
: Vector (of length 2) of unconditional alpha outperformance ratios.
dalpha
: alpha outperformance ratios difference.
tstat
: t-stat of alpha outperformance ratios differences.
pval
: pvalues of test of alpha outperformance ratios differences.
Further details on the methodology with an application to the hedge fund industry is given in in Ardia and Boudt (2018).
Some internal functions where adapted from Michael Wolf MATLAB code.
David Ardia and Kris Boudt.
Ardia, D., Boudt, K. (2015). Testing equality of modified Sharpe ratios. Finance Research Letters 13, 97–104.
Ardia, D., Boudt, K. (2018). The peer performance ratios of hedge funds. Journal of Banking and Finance 87, 351–368.
Barras, L., Scaillet, O., Wermers, R. (2010). False discoveries in mutual fund performance: Measuring luck in estimated alphas. Journal of Finance 65(1), 179–216.
Sharpe, W.F. (1994). The Sharpe ratio. Journal of Portfolio Management 21(1), 49–58.
Ledoit, O., Wolf, M. (2008). Robust performance hypothesis testing with the Sharpe ratio. Journal of Empirical Finance 15(5), 850–859.
Storey, J. (2002). A direct approach to false discovery rates. Journal of the Royal Statistical Society B 64(3), 479–498.
alphaScreening
..
## Load the data (randomized data of monthly hedge fund returns)
data("hfdata")
x = hfdata[,1]
y = hfdata[,2]
## Run alpha testing
alphaTesting(x, y)
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