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Topics in financial risk management and fund management

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posted on 28.03.2022, 18:34 by Haijie Weng
This PhD thesis analyses three key problems in financial risk management and fund management. First, it tackles the problems of identifying risk contributors and performing Value-at-Risk analysis for Asian hedge funds. Second, it sheds light on agency problems affecting funds management in Australia. Last but not least, it discusses the problems of cleansing financial historical data essential for risk management. The thesis consists of three key chapters based on two published journal articles and one research paper. Chapter 3, titled Style Analysis and Value-at-Risk of Asia-focused Hedge Funds has been published in the Pacific-Basin Finance Journal, Volume 19 (2011). The chapter identifies risk factors and analyses Value-at-Risk (VaR) for Asia-focused hedge funds. Through a modified style analysis technique, we find that Asian hedge funds represented by Asian hedge fund indices show significant positive exposure to emerging equity markets. They also hold a significant portion of portfolio in cash and high credit rating bonds while taking short positions in world government and emerging market bonds. A rolling window style analysis is used to measure the time-varying risk exposure of Asian hedge funds. For both a static and rolling period style analysis, our model provides high explanatory power for returns on the considered hedge fund index. We further conduct a Value-at-Risk analysis using the results of a rolling window style analysis as inputs. Our results indicate that the accuracy of VaR models is dominated by their ability to capture the tail distribution of the hedge fund returns. Moreover, the distributional assumption seems to be more important than the chosen volatility model for the performance of the models in VaR prediction. Our findings further suggest that the considered parametric models outperform a simple historical simulation that is purely based on past return observations. Chapter 4 is based on a journal article, titled Agency Theory and Financial Planning Practice that has been published in the Australian Economic Review, Volume 47 (2014). The chapter extends an influential contribution to the literature on agency theory and then uses this extension, along with other theoretical contributions, to shed light on agency problems affecting funds management and financial planning in Australia. The case for pure fee for service in actively managed funds and plans turns out to be weak. The amount of money exposed to risk by an active manager should be less than the entire investible wealth of the client, especially in the case of investors on the cusp of retirement. Asset-based fees on actively managed funds should include a fulcrum component. Chapter 5 titled Backfilling Financial Data with an Iterative PCA-based Imputation proposes an iterative PCA-based data imputation algorithm for handling missing values in financial time series. The designed backfilling algorithm generates satisfactory results for both simulated and empirical data, covering equity, rates and FX asset classes. Furthermore, our proposed model outperforms two of the most commonly used approaches for data imputation. Performance of our model depends on the fraction of the missing data and the noise of the data set. Our model serves as a robust tool for risk managers to backfill missing values in financial data, considering that complete data forms a prerequisite for generating a correct estimation of VaR and other performance measures.


Table of Contents

1. Abstract -- 2. Introduction -- 3. Style analysis and value-at-risk of Asia-focused hedge funds -- 4. Agency theory and financial planning practice -- 5. Backfilling financial data with an iterative PCA-based imputation -- 6. Summary and conclusions -- 7. References.


Includes bibliographical references Thesis by publication.

Awarding Institution

Macquarie University

Degree Type

Thesis PhD


PhD, Macquarie University, Faculty of Business and Economics, Department of Applied Finance and Actuarial Studies

Department, Centre or School

Department of Applied Finance and Actuarial Studies

Year of Award


Principal Supervisor

Stefan Trück


Copyright Haijie Weng 2014. Copyright disclaimer: http://www.copyright.mq.edu.au




1 online resource (140 pages)

Former Identifiers

mq:44247 http://hdl.handle.net/1959.14/1067592