Trading off accuracy for speed: hedge funds' decision-making under uncertainty

Catalin-Florinel Dragomirescu-Gaina, Dionisis Philippas, Mike G. Tsionas

Research output: Contribution to journalArticle

Abstract

Active managers operating quick portfolio adjustments, backed only by some rough estimates and loose predictions, might improve their market timing performances to benefit in turbulent times, but oversimplification can lead to an inability to profit in calm markets. By selecting accuracy levels upfront, through different data-filtering techniques, we expose a trade-off between prediction accuracy and reaction speed across different hedge funds' investment styles. Our empirical analysis shows that less accurate predictions can speed up reactions to unexpected changes in a large set of uncertainty and risk measures. We justify and complement these findings with a simulation exercise.
Original languageEnglish
Pages (from-to)N/A-N/A
JournalINTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
DOIs
Publication statusPublished - 2021

Keywords

  • Dynamic decision-making, Portfolio strategy, Uncertainty

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