Download or read book Volatility and Asset Class Exposure Drive Hedge Fund Returns written by Robert A. Brown and published by . This book was released on 2015 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: The average hedge fund represented by the HFRI Fund Weighted Composite Index of more than 2,000 funds lost 19 percent in 2008 but turned around and gained 20 percent in 2009. Was this extreme performance due to alpha or to embedded betas? The most-quoted measure of volatility is the VIX Index. On January 1, 2008, the VIX stood at 22.50. By October 24, 2008, volatility had spiked to 89.53, a 298-percent increase. The VIX fell during 2009, reaching a low of 19.25 by December 24, 2009, a 78-percent decrease. If hedge funds are short volatility, was their 2008 negative performance a function of the sharp spike in this factor exposure? Similarly, did they post outsized positive returns in 2009 purely as a function of the collapse in volatility? These questions raise more serious questions about hedge fund embedded betas and their successful or unsuccessful active management.

Download or read book Hedge Fund Returns written by Christian Alexander Wegener and published by Logos Verlag Berlin GmbH. This book was released on 2011 with total page 285 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present work advances the research on hedge fund returns in three main areas. Firstly, their statistical properties are assessed in order to understand by what degree the returns of this alternative asset class are subject to non-normality, autocorrelation and heteroscedasticity. Secondly, state-of-the-art econometric approaches are used for the purpose of analyzing whether and to what extent monthly hedge fund returns are forecastable. Thirdly, an effort is made to identify and explain which economic risks affect the performance of the different hedge fund strategy styles in which way. The empirical results suggest that monthly hedge fund returns are forecastable by means of multivariate regression models which rely on economic predictors such as changes in interest rates or changes in business outlooks. Accounting for the fact that hedge fund returns are non-normally distributed, heteroscedastic and time-varying in their exposure to pervasive risk factors, the devised econometric models are found to deliver significant out-of-sample predictive power. The thesis at hand also documents that the interdependencies between the monthly changes of envisaged risk factors and the subsequent hedge fund returns remain remarkably stable throughout time. In essence, the performance of hedge funds appears to be sensitive to common business cycle movements. Altogether, the results are relevant to researchers in search of a description and application of contemporary return prediction methods as well as to investors in need of a better understanding of the drivers of hedge fund returns.

Download or read book Hedge Funds written by IMCA and published by John Wiley & Sons. This book was released on 2003-03-10 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: A well-rounded hedge fund guide for the serious financial professional Alternative investment strategies-hedge funds in particular-have experienced a significant resurgence recently, largely in response to the dramatic downturn of the global equity markets. In response to this explosion in popularity, this book focuses on many of the best moneymaking strategies related to these alternative investment vehicles. IMCA (The Investment Management Consultants Association) is a professional association established in 1985, representing the investment consulting profession in the U.S. and Canada. Kenneth S. Phillips is a member of the IMCA Advisory Council and Managing Principal of Capital Partners, LLC. Ron Surz, CIMA, is a member of the IMCA Board of Directors and the President of PPCA Inc.

Download or read book Hedge Funds written by Vikas Agarwal and published by Now Publishers Inc. This book was released on 2005 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge Funds summarizes the academic research on hedge funds and commodity trading advisors. The hedge fund industry has grown tremendously over the recent years. According to some industry estimates, hedge funds have increased from $39 million in 1990 to about $972 million in 2004 and the total number of hedge funds has gone up from 610 to 7,436 over the same period. At the same time, hedge fund strategies have changed significantly. In 1990 the macro strategy dominated the industry while in 2004 the equity hedge strategy had the largest share of the market. There has also been a shift in the type of investor in hedge funds. In the early 1990's the typical investor was a high net-worth individual investor, today the typical investor is an institutional investor. Thus, the hedge fund market has not only grown tremendously, but the nature of the market has changed. Despite the enormous growth of this industry, there is limited information available on hedge funds. As a result, there is a need for rigorous research from both the investors' and regulators' point of view. Investors need research to better understand their investment and their risk exposure. This research also helps investors recognize the extent of diversification benefits hedge funds offer in combination with investments in traditional asset classes, such as stocks and bonds. Regulators can use this research to identify situations where regulation may be needed to protect investors' interests and to understand the impact hedge funds trading strategies have on the stability of the financial markets. The first part of Hedge Funds summarizes hedge fund performance, including comparisons of risk-return characteristics of hedge funds with those of mutual funds, factors driving hedge fund returns, and persistence in hedge fund performance. The second part reviews research regarding the unique contractual features and characteristics of hedge funds and their influence on the risk-return tradeoffs. The third part reviews the role of hedge funds in a portfolio including the extent of diversification benefits and limitations of standard mean-variance framework for asset allocation. Finally, the authors summarize the research on the biases in hedge fund databases.

Download or read book The World of Hedge Funds written by H. Gifford Fong and published by World Scientific. This book was released on 2005 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt: The World of Hedge Funds is a compendium of distinguished papers focusing on the cutting-edge analysis of hedge funds. This area is arguably the fastest growing source of funds in the investment management arena. It represents an exciting opportunity for the investor and manager in terms of the range of return and risk available. A source of rigorous analysis is therefore both sought after as well as needed. This book aims to fill this gap by presenting an eclectic collection of papers contributed by influential academics and practitioners covering the characteristics and problems of hedge funds.

Download or read book Battle for Alphas written by Duen-Li Kao and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The study reported here empirically examined whether the alphas of hedge funds and those of long-only portfolios present different distributions and are derived from different risk factors. Adjusted for return volatility differences, hedge funds seem to offer more consistent alphas for potential transfer to either equity or bond asset classes than do long-only portfolios-even under extreme market conditions. Potential explanations for the findings include lack of data reliability and differences between hedge funds and actively managed long-only funds in compensation, investment constraints, and structures. Factors related to market index returns do not adequately detect hedge funds' risk postures beyond a fund's exposure to the market-directional risk of standard asset classes. Risk factors derived from asset prices in financial markets do provide timely and systematic descriptions of the risks underlying trading strategies used by hedge funds. The multifactor risk-style analysis presented here can effectively monitor a hedge fund's exposure to systematic versus idiosyncratic risks and volatility-risk factors over time.

Download or read book Trends Everywhere The Case of Hedge Fund Styles written by Charles Chevalier and published by . This book was released on 2019 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates empirically whether time-series momentum returns can explain the performance of hedge funds in the cross-section. Following the trend following literature, a volatility-adjusted time-series momentum signal is applied on a daily basis across a large set of futures, covering the major asset classes. We build a hierarchical set of trend factors: the full version TREND can be split in summable factors across two dimensions, the horizon of the signals and the traded asset class. We show that Managed Futures, Global Macro and Fund of Hedge Funds strategies can be partly explained by a TREND exposure, whereas Equity Market Neutral and Quantitative Directional are only exposed to long term trend factors. Moreover, a TREND expo- sure is a significant determinant of hedge funds returns at the aggregate level, as well as at the fund level. Finally, funds with high TREND beta outperform by 41 basis points of alpha the funds with low Trend beta. These results prove useful when managing the risk of a portfolio of hedge funds strategies, since assessment of the Trend exposure is easier. Another contribution of this study is related to the understanding of the CTA space, composed of pure trend funds as well as funds that do not exhibit any TREND exposure.

Download or read book Tail risk of hedge funds an extreme value application written by Gregor Aleksander Gawron and published by Cuvillier Verlag. This book was released on 2007-12-04 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the last decade the hedge fund industry has been the fastest growing asset class in the financial sector. Low volatility and low correlation, together with historically good performance may explain the increasing attractiveness of hedge funds among insitutional and retail investors in recent years. However, hedge funds pose a challenge to standard risk measures based on normally distributed returns. Indeed, the returns of hedge fund indices are not normally distributed and have exhibited unusuall levels of skewness and kurtosis. Clearly, volatility and correlation do not provide sufficient information about risk and dependence when the normality assumption is violated. As a consequence, applying symmetric measures on hedge funds may lead to erroneous conclusions. In this thesis, the use of Extreme Value Theory is advocated. This area of statistics enables the estimation of tail probabilities regardless of the underlying distribution of hedge fund returns. This thesis contributes to the growing literature onn risk associated with hedge funds in two main directions. Firstly, it carefully examines the tail risk of individual hedge fund strategies and of portfolios built with stocks, bonds and hedge funds using Extreme Value Theory. Secondly, it furhter measures the dependence between hedge funds and traditional investments in period of crises. For this purpose it tests explicitly the existence of asymptotic dependence between hedge funds and traditional investments.

Download or read book Volatility of Aggregate Volatility and Hedge Fund Returns written by Vikas Agarwal and published by . This book was released on 2019 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates empirically whether uncertainty about equity market volatility can explain hedge fund performance both in the cross section and over time. We measure uncertainty via volatility of aggregate volatility (VOV) and construct an investable version through returns on lookback straddles on the VIX index. We find that VOV exposure is a significant determinant of hedge fund returns. After controlling for fund characteristics, we document a robust and significant negative risk premium for VOV exposure in the cross section of hedge fund returns. We corroborate our results using statistical and parameterized proxies of VOV over a longer sample period.

Download or read book The Asymmetric Impact of Volatility Risk on Hedge Fund Returns written by Jarkko Peltomaki and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the asymmetric impact of volatility risk on returns of hedge fund strategies. I compare volatility risk exposures to price risk exposures by considering the causation between implied volatility and market returns. I also investigate whether the latest financial crises have caused structural changes in the risk exposures. My results indicate that the volatility risk is related to returns of most hedge fund strategies in a nonlinear way. Further, the use of volatility risk as a factor in hedge fund analysis suffers from asymmetry that is similar to the impact of price risk.

Download or read book What Drives Hedge Fund Returns written by Mila Getmansky and published by . This book was released on 2004 with total page 187 pages. Available in PDF, EPUB and Kindle. Book excerpt: (Cont.) ors for the smoothing profile as well as a smoothing-adjusted Sharpe ratio were developed. Estimated smoothing coefficients were found to vary considerably across hedge-fund style categories and may be a useful proxy for quantifying illiquidity exposure. In Essay Two, the life cycles of hedge funds were analyzed. The findings show that in general, investors chasing individual fund performance decrease the probability of an individual hedge fund liquidating. However, when investors pursue a category of hedge funds that has performed well, the probability of hedge funds liquidating within that category increases due to growing competition among hedge funds; and in such environment, marginal funds are more likely to be liquidated than funds that deliver superior risk-adjusted returns. In the Essay, a model was proposed that allows to obtain an optimal asset size by balancing out the effects of past returns, fund flows, market impact, competition and favorable category positioning.

Download or read book The Tail Risk of Hedge Fund Returns written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I test whether recently proposed, stock market-based tail risk measures explain hedge fund returns. The tail risk measures are TAIL (Kelly and Jiang; 2014), LBVIX (Agarwal, Arisoy, and Naik; 2014), VVIX (Park; 2013), and variations of these measures. The hedge fund data is a variety of hedge fund indices and different samples of individual hedge funds drawn from the Lipper/TASS database. Using EUR-denominated stocks and hedge funds instead of USD-denominated stocks and hedge funds, I test the results of Kelly and Jiang (2012) by applying their methodology to the Eurozone. The results are qualitatively identical, lending support to the claim that TAIL is a risk factor for hedge funds. On the other hand, I find evidence against the claim that TAIL suitably represents tail risk. Incorporating a weighting factor for the stocks' market capitalizations in the calculation of TAIL leads to a more plausible but very different evolution of TAIL and reverses the effect of TAIL in the cross-section of hedge fund returns. Ultimately, no evidence remains for the claim that exposure to tail risk is compensated with higher overall returns. In the second part of this paper, I replicate the results of Agarwal, Arisoy, and Naik (2014) and perform additional robustness tests that confirm the relevance of the second-order volatility measure LBVIX for hedge fund returns. These results extend to the VVIX as an alternative, non-investable measure of second-order volatility. Hedge funds that are more negatively exposed to second-order volatility achieve higher average excess and alpha returns. Following Park (2013), I decompose VVIX into the integrated volatility of volatility (IVV) and the jump variation (VJUMP). This decomposition allows a further and novel analysis of the relationship between second-order volatility and hedge fund returns. I find that it is not the exposure to volatility jumps but to diffusive movements in volatility that is negative.

Download or read book How Costly Are Stale Prices Illiquidity in Hedge Fund Returns and Its Implications for Asset Allocation written by Brian Stoner and published by . This book was released on 2017 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diversification and low correlation are the primary reasons institutional investors cite for choosing toinclude hedge funds in a portfolio. However, there are a number of hidden biases in the reported returns which may overstate the attractiveness of hedge funds as an asset class.We review the literature on the stale pricing bias in hedge fund returns, propose an improved model for assessing the existence and extent of the stale pricing bias, and discuss potential causes of the pricing bias. We show how correcting hedge fund returns for stale pricing has a meaningful impact on the estimated volatility and correlation with other asset classes. From this, we demonstrate the degree to which asset allocation decisions relying on standard mean-variance optimization will mis-allocate to hedge funds when the stale pricing bias is not corrected.

Download or read book The fundamental principles of financial regulation written by Markus Konrad Brunnermeier and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Portfolio Structuring and the Value of Forecasting written by Jacques Lussier and published by CFA Institute Research Foundation. This book was released on 2016-10-10 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Risks of Financial Institutions written by Mark Carey and published by University of Chicago Press. This book was released on 2007-11-01 with total page 669 pages. Available in PDF, EPUB and Kindle. Book excerpt: Until about twenty years ago, the consensus view on the cause of financial-system distress was fairly simple: a run on one bank could easily turn to a panic involving runs on all banks, destroying some and disrupting the financial system. Since then, however, a series of events—such as emerging-market debt crises, bond-market meltdowns, and the Long-Term Capital Management episode—has forced a rethinking of the risks facing financial institutions and the tools available to measure and manage these risks. The Risks of Financial Institutions examines the various risks affecting financial institutions and explores a variety of methods to help institutions and regulators more accurately measure and forecast risk. The contributors--from academic institutions, regulatory organizations, and banking--bring a wide range of perspectives and experience to the issue. The result is a volume that points a way forward to greater financial stability and better risk management of financial institutions.

Download or read book Asset Management written by Andrew Ang and published by Oxford University Press, USA. This book was released on 2014 with total page 717 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stocks and bonds? Real estate? Hedge funds? Private equity? If you think those are the things to focus on in building an investment portfolio, Andrew Ang has accumulated a body of research that will prove otherwise. In this book, Ang upends the conventional wisdom about asset allocation by showing that what matters aren't asset class labels but the bundles of overlapping risks they represent.