Kat to Jaeger: “Let’s skip the nitpicking…how useful is modern finance theory, really?”
Mar 5th, 2008 | Filed under: Alternative Beta & Hedge Fund Replication, Guest PostsOne of our primary objectives at AllAboutAlpha.com is to encourage debate and discussion on emerging topics in investment management. That is why we cover new academic studies, surveys, counter-intuitive viewpoints and controversial opinions. Today, we bring you the latest in an ongoing debate between two well-known and highly regarded figures in the hedge fund industry, Professor Harry Kat of the Cass Business School and Dr. Lars Jaeger of fund manager Partners Group (previous postings: Jaeger…Kat…Jaeger…). Although Kat and Jaeger differ on many issues, they share a common interest in furthering the field of finance through frank, collegial and mutually-respectful debate. And judging from our traffic, so do you the reader.
Today, Kat responds to Jaeger’s rebuttal…
Special to AllAboutAlpha.com by: Professor Harry M. Kat, Cass Business School, London
Before I respond to Lars Jaeger’s comments in more detail, it is probably good to backtrack a bit. In my note of February 20, 2008, I made the following 3 points:
First, if you want to replicate a diversified hedge fund index, you don’t need alternative betas since such an index is almost fully driven by traditional risk factors.
Second, the (traditional) factor exposures of diversified hedge fund indices do not seem to change quickly enough over time to completely invalidate the factor model approach. The performance (backtested or live) of the various factor model based replication products supports this. I showed the evolution of the Goldman Sachs ART index because the Bloomberg data go back until 1996, but I could well have picked another comparable product.
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[…] In the latest in their ongoing debate, Harry Kat questions Lars Jaeger’s reliance on modern finance - a field he calls “utterly disappointing”….Original Source Send to a friend […]