Classification and indexing issues in alternative investments

Description

In our study, we examine the HF index construction methodologies and more specific on the classification process by two DB vendors, namely HFR and S&P. We compare different methodologies using the same dataset and demonstrate using real data how HF indices can end up with different constitutes. We use the existing index engineering methodologies and compare them using the same dataset with practical examples, at the HF strategy level. We decompose these processes that most investors and researchers regard them as a black box. It is essential to mention that both vendors use similar ‘tree’ index structure and calculation using the NAV (net asset value) general principles. The main differences are in the classification methods.