Recent years have seen increased demand from institutional investors for passive replication products that track the performance of hedge fund strategies using liquid investable assets such as futures contracts. In practice, linear replication methods suffer from poor tracking performance and...

The evaluation of hedge fund performance is challenging given the flexible nature of hedge funds' strategies and their lack of operational transparency. As a result inference about skill is inevitably contaminated by the error in the benchmark model. To address this concern, we propose a model...