Valuation of Hedge Funds Portfolios in a Downside Risk Framework

Abstract

The purpose of this paper is to extend the capital asset pricing models in the downside risk framework to hedge funds universe in order to take into account the asymmetry of returns of these funds and the risk perception of investors. The empirical evidence based on Credit Suisse/Tremont Hedge Fund database shows that the capital asset pricing models in a downside risk framework, especially the D-CAPM, describe better the valuation of hedge funds portfolios.