Abstract
Seasonality and behavior patterns are part of our daily live. Several different studies have demonstrated that seasonality behavior exists in different financial markets, especially in the spot market of equities and bonds. But thus this occurs when we consider the monthly returns in hedge funds indexes? Many market participants have observed that as year goes by a December Spike occurs frequently, and that has permeated that the financial community more or less accept this effect as a common occurrence.This paper intends to determine whether seasonality exists across hedge fund strategies, by comparing, for the period of 1998 to 2008, the performance of the EDHEC indices with another one of the most representative indices of hedge funds, the CSFB/Tremont index, regarding seven main strategies.The results do not reject the hypothesis of seasonality on every strategy, comparing the two data sources, showing that there are significant higher returns in December, as well as lower and negative returns during the months of August, September and October. These results suggest that BLASH is possible in Hedge Funds management.
Highlights
IntroductionSeasonality and behavior patterns are present on our daily life
The purpose of this paper is to determine if seasonality exists across hedge fund indexes, in all seven strategies considered, and if so, can hedge fund managers perform BLASH (Buy Low And Sell High) strategy? In this context, we address two questions: Do the widely variety of hedge funds strategies follows seasonality? Is seasonality an opportunity for major gains in managing hedge funds?
Based on the results presented on Table 1. (EDHEC databases) and Table 2.A.and 2.B (CSFB databases), we can verify that the Seasonality coefficients present their highest values in December for five of the seven strategies, “IS BLASH POSSIBLE IN HEDGE FUNDS? AN APPROACH TO SEASONALITY”
Summary
Seasonality and behavior patterns are present on our daily life. From weather patterns to energy consumption patterns, seasonality is clearly present. Several different studies have demonstrated that seasonality behavior exists in different financial markets, especially in the spot market of equities and bonds. Seasonality in financial markets implies that in general there are greater returns in some monthly periods than others. This allows the investor to buy during the monthly periods of lower returns and sell in the periods of higher returns. This occurs when we consider the monthly returns in hedge funds indexes?
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