TY - JOUR T1 - Conditional Financial Models and the Alpha Puzzle JF - The Journal of Wealth Management SP - 59 LP - 77 DO - 10.3905/jwm.11.2.59 VL - 11 IS - 2 A2 - Racicot, François-Éric Théoret, Raymond Y1 - 2008/07/31 UR - https://pm-research.com/content/11/2/59.abstract N2 - This article proposes new estimations of conditional versions of the Fama-French model in order to deal with the alpha puzzle that emerges from hedge fund studies. Its originality lies in resorting to a new form of GMM, the GMM-C, which uses the cumulants of the explanatory variables as instruments in doing the estimations of each hedge fund strategy in panel. The estimations reveal that the new estimator is robust and is preferable to the usual OLS estimation of conditional models, which does not account for specification errors as does the GMM-C. This article also shows that the success of a conditional model in solving the alpha puzzle is related to a judicious choice of the conditioning information.TOPICS: Real assets/alternative investments/private equity, factor-based models, statistical methods, performance measurement ER -