scholarly journals AN EVALUATION OF HEDGE FUNDS: RISK, RETURN AND PITFALLS

2002 ◽  
Vol 47 (01) ◽  
pp. 153-171 ◽  
Author(s):  
FRANCIS KOH ◽  
DAVID K. C. LEE ◽  
KOK FAI PHOON
Keyword(s):  
Hedge Funds ◽  
Legal Status ◽  
Hedge Fund ◽  
Empirical Work ◽  
Risk And Return ◽  
Net Worth ◽  
Empirical Risk ◽  
And Performance ◽  
Short Sell ◽  
Risk Dimensions

Hedge funds are collective investment vehicles fast becoming popular with high net worth individuals as well as institutional investors. These are funds that are often established with a special legal status that allows their investment managers a free hand to use derivatives, short sell and exploit leverage to raise returns and cushion risk. Given that they have substantial latitude to invest, it is instructive to examine the performance of hedge funds as compared to other forms of managed funds. This paper provides an overview of hedge funds and discusses their empirical risk and return profiles. It also poses some concerns regarding the empirical measurements. Given the complexity of hedge fund investments, meaningful analytical methods are required to provide greater risk transparency and performance reporting. Hedge fund performance is also beset by a number of practical issues generating "practical risks". These risks are not fully addressed by the usual risk-adjusted performance measures in the literature. A penalty function to discount these extraneous risk dimensions is proposed. The paper concludes that further empirical work is required to provide informative statistics about the risk and return of hedge funds.

scholarly journals HEDGE FUNDS: RISK AND PERFORMANCE

2018 ◽  
Vol 06 (01) ◽  
pp. 1850003
Author(s):  
SANGHEON SHIN ◽  
JAN SMOLARSKI ◽  
GÖKÇE SOYDEMIR
Keyword(s):  
Risk Factors ◽  
Hedge Funds ◽  
Factor Model ◽  
Explanatory Power ◽  
Hedge Fund ◽  
Investment Strategy ◽  
Time Varying ◽  
Asset Class ◽  
And Performance ◽  
Fund Portfolio

This paper models hedge fund exposure to risk factors and examines time-varying performance of hedge funds. From existing models such as asset-based style (ABS)-factor model, standard asset class (SAC)-factor model, and four-factor model, we extract the best six factors for each hedge fund portfolio by investment strategy. Then, we find combinations of risk factors that explain most of the variance in performance of each hedge fund portfolio based on investment strategy. The results show instability of coefficients in the performance attribution regression. Incorporating a time-varying factor exposure feature would be the best way to measure hedge fund performance. Furthermore, the optimal models with fewer factors exhibit greater explanatory power than existing models. Using rolling regressions, our customized investment strategy model shows how hedge funds are sensitive to risk factors according to market conditions.

Current Hedge Fund Debates and Controversies

2017 ◽  
Author(s):  
Dianna C. Preece
Keyword(s):  
Insider Trading ◽  
Hedge Funds ◽  
Conflicts Of Interest ◽  
Hedge Fund ◽  
Securities And Exchange Commission ◽  
Active Management ◽  
Wall Street ◽  
Net Worth ◽  
Market Participants ◽  
Alternative Beta

The hedge fund industry has grown to nearly $3 trillion over the last 20 years. High-net-worth individuals and institutional investors expect high returns and low correlation with traditional asset classes in exchange for the fees paid. The standard fee structure is “2 and 20,” 2 percent of assets under management and 20 percent of profits, representing high fees for active management. Hedge funds are largely unregulated and somewhat mysterious. As a result, they are the subject of debates and controversies among market participants and policymakers alike. Debates focus on fee structures, alpha versus alternative beta, weakening returns, activist investors, and leverage. The Securities and Exchange Commission has targeted hedge fund misconduct and malfeasance, pursuing perpetrators of fraud, insider trading, and conflicts of interest in the industry. Several high-ranking Wall Street hedge fund executives have been charged with, and in some cases convicted of, breaking securities laws.

scholarly journals Hedge Fund Flows and Performance Streaks: How Investors Weigh Information

2021 ◽  
Author(s):  
Guillermo Baquero ◽  
Marno Verbeek
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Cash Flows ◽  
Fund Flows ◽  
Hot Hand ◽  
Highly Sensitive ◽  
Wide Range ◽  
Processing Abilities ◽  
And Performance ◽  
Types Of Information

Cash flows to hedge funds are highly sensitive to performance streaks, a streak being defined as subsequent quarters during which a fund performs above or below a benchmark, even after controlling for a wide range of common performance measures. At the same time, streaks have limited predictive power regarding future fund performance. This suggests investors weigh information suboptimally, and their decisions are driven too strongly by a belief in continuation of good performance, consistent with the “hot hand fallacy.” The hedge funds that investors choose to invest in do not perform significantly better than those they divest from. These findings are consistent with overreaction to certain types of information and do not support the notion that sophisticated investors have superior information or superior information processing abilities. This paper was accepted by David Simchi-Levi, finance.

Investment Strategies of Hedge Funds

2021 ◽  
pp. 112-135
Author(s):  
Hany A. Shawky
Keyword(s):  
Capital Structure ◽  
Hedge Funds ◽  
Yield Curve ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Fixed Income ◽  
Relative Value ◽  
Merger Arbitrage ◽  
Arbitrage Strategy ◽  
And Performance

This chapter reviews a number of different hedge fund strategies, including equity hedge, long/short, market neutral, relative value arbitrage, convertible arbitrage strategy, capital structure arbitrage strategy, fixed income arbitrage strategy, yield curve arbitrage strategy, other relative value arbitrage strategies, emerging markets strategies, global macro strategies, event driven strategies, distressed securities, and merger arbitrage strategies. In addition, the author discusses the growth and performance of different strategies, as well as fraud, fund failures, activism, and regulation.

Hedge Funds and Performance Persistence

2017 ◽  
Author(s):  
Nan Qin ◽  
Ying Wang
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Empirical Literature ◽  
Performance Persistence ◽  
Attrition Rates ◽  
Short And Long Term ◽  
And Performance ◽  
Long Term Performance ◽  
Term Performance

Despite the exponential growth of global hedge fund assets since the 1990s, the high attrition rates in the industry have raised an important issue about hedge fund return persistence. This chapter discusses the various statistical methodologies in measuring performance persistence and provides a comprehensive review of the empirical literature on short- and long-term performance persistence. In particular, the literature suggests that fund strategies and characteristics are related to performance persistence. The chapter also discusses three important issues: return smoothing, the use of option-like strategies, and data biases. The chapter provides additional empirical evidence on performance persistence, using a portfolio approach and a hedge fund sample from the Trading Advisor Selection System (TASS) database between 1994 and 2015.

Hedge Fund Governance

2017 ◽  
Author(s):  
Lamia Chourou ◽  
Ashrafee T. Hossain ◽  
Samir Saadi
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Best Interests ◽  
Individual Investors ◽  
Net Worth ◽  
Fund Managers ◽  
Governance Practices ◽  
Governance Challenges ◽  
Fund Governance ◽  
Dramatic Shift

Hedge fund governance has attracted much interest since the financial crisis of 2007–2008 resulting in a dramatic shift in hedge funds’ shareholder composition, from high-net-worth individual investors to active institutional investors. The crisis, coupled with some major scandals, including Bernard Madoff’s multi-billion-dollar Ponzi scheme and the Weavering Capital fraud, uncovered poor governance practices in the hedge fund industry. Fund managers now face serious governance challenges that tend to focus on governance arrangements and independence of fund boards. Maintaining quality governance rules in hedge funds is critical for the industry. Evidence suggests that having sound and transparent governance practices is in the best interests of hedge fund managers. This chapter first addresses the development of corporate governance, followed by an analysis of hedge fund governance. Next the chapter explores the ongoing governance debates facing the industry. The chapter ends by discussing the changing nature of hedge fund governance.

The European hedge funds industry: An empirical analysis of performance, liquidity, and growth

2021 ◽  
Vol 5 (2) ◽  
pp. 89-101
Author(s):  
Soumaya Ben Khelifa
Keyword(s):  
Hedge Funds ◽  
Economic Value ◽  
Hedge Fund ◽  
Liquidity Risk ◽  
Fund Performance ◽  
Market Liquidity ◽  
Share Restrictions ◽  
And Performance ◽  
Hedge Fund Performance ◽  
Analysis Of Performance

While the performance of hedge funds has grabbed much attention from researchers, a few studies have been conducted on the drivers of hedge fund liquidity and performance (Shaub & Schmid, 2013). This study proposes new approaches to investigate the effect of share restrictions on European hedge fund performance and liquidity. We run different regressions of 1) returns, 2) flows, and 3) exposure to market liquidity risk on share restrictions, managerial incentives, and a set of control variables as independent variables. Using a sample of 1423 European hedge funds, our results suggest that restrictions imposed by European hedge funds add economic value to investors. Furthermore, we find that European hedge funds with strong share restrictions take on lower liquidity risk. There is a weak difference in liquidity risk exposure across directional European hedge funds with and without share restrictions. In addition, European hedge funds’ experience, large outflows during a crisis, and all share restrictions do not seem to be significantly related to funding flows in the crisis period, as well as in times of non-crisis. Finally, only the groups of young funds are associated with significant funds exposure to market liquidity risk

scholarly journals Risks and returns in hedge funds – econometric and austrian economic perspectives

2021 ◽  
pp. 103-131
Author(s):  
Mónica Vinje Redpath
Keyword(s):  
Hedge Funds ◽  
Austrian Economic ◽  
Asset Price ◽  
Hedge Fund ◽  
Jel Classification ◽  
Austrian Economics ◽  
Net Worth ◽  
Market Opportunities ◽  
Economic Perspectives ◽  
Policy Risk

Hedge funds and funds of hedge funds are some of the preferred ways to access capital market opportunities by institutional investors and high net worth individuals seeking vehicles of absolute return. Risks and returns are difficult to assess because of skewness and kurtosis so that traditional mean and variance analyses are inappropriate. I assess the possible implications of high leverage finance and financial innovations from an Austrian economic viewpoint on the basis of an econometric analysis of hedge fund risk adjusted returns and a historical consideration of asset price shocks in Thailand and Japan. Key words: Hedge funds, leveraged finance, Austrian economics, monetary policy, risk. JEL classification: B53, C01, E58, D53.

Hedge Fund Organization

2017 ◽  
Author(s):  
Douglas Cumming ◽  
Na Dai ◽  
Sofia Johan
Keyword(s):  
Hedge Funds ◽  
Service Providers ◽  
Hedge Fund ◽  
The United States ◽  
Fund Performance ◽  
Performance Persistence ◽  
Public And Private ◽  
The World ◽  
And Performance ◽  
Limited Partnerships

Hedge funds are organized as limited partnerships that obtain money from institutional investors and reinvest that money in public and private firms. Some criticize hedge funds for exacerbating financial instability, whereas others note instances of hedge fund fraud and call for greater regulation. This chapter provides a review of existing hedge fund regulation around the world regarding minimum capitalization, distribution channels, and restrictions on the location of key service providers. It also summarizes research on the consequences of hedge fund regulation in the United States and around the world involving fund performance and performance persistence. Finally, the chapter summarizes the benefits of Delaware law for hedge funds.

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