Hedge Fund Strategies in the Post-Crisis Era

2021 ◽  
pp. 135-159
Author(s):  
Yigit Atilgan ◽  
Turan G. Bali ◽  
A. Doruk Gunaydin
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
Bond Market ◽  
Market Portfolio ◽  
Relative Value ◽  
Pricing Factors ◽  
Merger Arbitrage ◽  
Arbitrage Strategy ◽  
Risk Ratios

This chapter examines the performances of various hedge fund strategies based on various reward-to-risk ratios after the 2008 global crisis. We document that a majority of hedge fund strategies deliver lower average returns compared to equities and bonds; yet the volatilities of their returns have also been low. The equity hedge strategy has the highest reward-to-risk ratios among the major strategy categories, whereas the relative value arbitrage strategy has the lowest. Technology/healthcare, merger arbitrage, discretionary thematic, and asset-backed arbitrage strategies tend to have the highest reward-to-risk ratios in their respective categories. Time-series regressions of hedge fund strategy returns on various fund pricing factors provide evidence that hedge funds, on average, do not generate abnormal returns once the pricing factors are controlled for. We also document that hedge fund strategy returns generally load negatively on the bond market and aggregate credit risk factors and positively on the market portfolio.

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.

Event-Driven Hedge Fund Strategies

2017 ◽  
Author(s):  
Caroline Farrelly ◽  
François-Serge Lhabitant
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Skill Sets ◽  
Broad Category ◽  
Event Driven ◽  
Arbitrage Trading ◽  
Merger Arbitrage ◽  
Time Frames ◽  
Legal Expertise

This chapter explores some of the strategies used by event-driven hedge funds, namely merger arbitrage, trading distressed securities, special situations, and activism. This broad category within the hedge fund space attracts about a quarter of the capital deployed to this part of the alternatives world. Investors are drawn to the idea of uncorrelated returns that can act as a source of diversification for their portfolios as well as the ability to follow the news flow related to their investments. In essence, such trades should have identifiable catalysts and time frames. The chapter offers illustrative examples of historical trades, providing some context of the types of positions funds may take and time frames involved. Various skill sets should be sought in an event-driven manager. Managers dealing in distressed securities are likely to benefit from a legal expertise, whereas activists need to be able to influence management and campaign publically.

scholarly journals Desempenho e Persistência de Hedge Funds Brasileiros Durante a Crise Financeira

2011 ◽  
Vol 9 (4) ◽  
pp. 525
Author(s):  
Gustavo Passarelli Giroud Joaquim ◽  
Marcelo Leite Moura
Keyword(s):  
Financial Crisis ◽  
Great Depression ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
The Great Depression ◽  
Daily Data ◽  
Time Frames

This study investigates the performance and persistence of the Brazilian hedge fund market using daily data from September 2007 to February 2011, a period marked by what was characterized by many as the world’s worst financial crisis since the great depression of the 1930s. Despite the financial turmoil, the results indicate the existence of a representative group of funds with abnormal returns and evidence of a joint persistence of funds with time frames of one to three months. Individual evaluations of the funds, however, indicate a reduced number of persistent funds.

Hedge fund variables and short-run SEO returns

2018 ◽  
Vol 14 (3) ◽  
pp. 322-341 ◽  
Author(s):  
Robert Martin Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Stock Returns ◽  
Hedge Funds ◽  
Statistical Significance ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
Seasoned Equity Offerings ◽  
Trading Strategies ◽  
Content Type ◽  
New Findings ◽  
Short Run

Purpose The purpose of this paper is to determine if hedge fund variables (HFVs) are associated with short-run daily buy and hold abnormal returns (BHARs) for a 30-day window around announcement dates for seasoned equity offerings (SEOs). Design/methodology/approach This paper utilizes the event study metric that computes BHARs. These BHARs are used in a regression model as dependent variables with HFVs and nonhedge fund variables (NFVs) as independent variables. For regression tests, standard errors are clustered at the month level. Findings This paper offers three new findings. First, HFVs are significantly associated with SEO BHARs. Second, HFVs are capable being associated with stronger statistical significance compared to NFVs. Third, not using HFVs can produce an omitted-variable bias. Research limitations/implications This paper does not have information on which individual hedge funds use a strategy during the month of the offering but only the proportion of hedge funds that do. A research implication is the proportion can be associated with SEO BHARs in a fashion predicted based on a long or short position. Practical implications Hedge funds can use trading strategies to capitalize on established patterns of price behavior. Social implications Hedge funds enjoy a trading advantage over smaller investors. Originality/value This paper is the first study to document the association between hedge fund stratagems and stock returns around a major corporate event. It shows researchers should consider institutional trading strategies when studying the market response to a major corporate event.

What Is the Nature of Hedge Fund Manager Skills? Evidence from the Risk-Arbitrage Strategy

2016 ◽  
Vol 51 (3) ◽  
pp. 929-957 ◽  
Author(s):  
Charles Cao ◽  
Bradley A. Goldie ◽  
Bing Liang ◽  
Lubomir Petrasek
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Merger And Acquisition ◽  
Superior Performance ◽  
Fund Manager ◽  
Fund Managers ◽  
Portfolio Holdings ◽  
Risk Arbitrage ◽  
Arbitrage Strategy ◽  
Hedge Fund Manager

AbstractTo understand the nature of hedge fund managers’ skills, we study the implementation of risk arbitrage by hedge funds using their portfolio holdings and comparing them with those of other institutional arbitrageurs. We find that hedge funds significantly outperform a naive risk-arbitrage portfolio by 3.7% annually on a risk-adjusted basis, whereas non–hedge fund arbitrageurs fail to outperform the benchmark. Our analysis reveals that hedge funds’ superior performance does not reflect fund managers’ ability to predict or affect the outcome of merger and acquisition deals; rather, hedge fund managers’ superior performance is attributed to their ability to manage downside risk.

Hedge Fund Manager Skill and Style-Shifting

2021 ◽  
Author(s):  
George J. Jiang ◽  
Bing Liang ◽  
Huacheng Zhang
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
Fund Managers ◽  
Timing Ability ◽  
Dynamic Strategy ◽  
Show Evidence ◽  
Style Shifting ◽  
Manager Skill ◽  
Investment Styles

Using a novel style identification procedure, we show that style-shifting is a dynamic strategy commonly used by hedge fund managers. Three quarters of hedge funds shifted their investment styles at least once over the period from January 1994 to December 2013. We perform empirical tests of two hypotheses for the motivations of hedge fund style-shifting, namely backward-looking and forward-looking hypotheses. We find no evidence that style-shifting funds are backward-looking. Instead, we show evidence that managers of style-shifting funds exhibit both style-timing ability and the skill of generating abnormal returns in new styles. The new styles that hedge funds shift to on average outperform their old styles by 0.76% and style-shifting funds on average outperform their new style benchmark by 1.10% over the subsequent 12-month horizon. Finally, we show that small funds, winner funds, and funds with net inflows are more likely to shift styles. This paper was accepted by David Simchi-Levi, finance.

scholarly journals Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis

2021 ◽  
Vol 2021 (037) ◽  
pp. 1-68
Author(s):  
Mathias S. Kruttli ◽  
◽  
Phillip J. Monin ◽  
Lubomir Petrasek ◽  
Sumudu W. Watugala ◽  
...  
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Cash Holdings ◽  
Liquidity Management ◽  
Regulatory Constraints ◽  
Relative Value ◽  
Share Restrictions ◽  
Arbitrage Trading ◽  
Hedge Fund Returns

Hedge fund gross U.S. Treasury (UST) exposures doubled from 2018 to February 2020 to $2.4 trillion, primarily driven by relative value arbitrage trading and supported by corresponding increases in repo borrowing. In March 2020, amid unprecedented UST market turmoil, the average UST trading hedge fund had a return of -7% and reduced its UST exposure by close to 20%, despite relatively unchanged bilateral repo volumes and haircuts. Analyzing hedge fund-creditor borrowing data, we find the large, more regulated dealers provided disproportionately more funding during the crisis than other creditors. Overall, the step back in hedge fund UST activity was primarily driven by fund-specific liquidity management rather than dealer regulatory constraints. Hedge funds exited the turmoil with 20% higher cash holdings and smaller, more liquid portfolios, despite low contemporaneous outflows. This precautionary flight to cash was more pronounced among funds exposed to greater redemption risk through shorter share restrictions. Hedge funds predominantly trading the cash-futures basis faced greater margin pressure and reduced UST exposures and repo borrowing the most. After the market turmoil subsided following Fed intervention, hedge fund returns recovered quickly, but UST exposures did not revert to pre-shock levels over the subsequent months.

Hedge Funds

2004 ◽  
Vol 10 (3) ◽  
pp. 441-521 ◽  
Author(s):  
J. J. Caslin
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Clear Understanding ◽  
Past Performance ◽  
Fund Managers ◽  
It Systems ◽  
Funds Of Hedge Funds ◽  
Key Characteristics ◽  
Data Points ◽  
Merger Arbitrage

ABSTRACTThe paper opens by showing how certain types of hedge funds can reduce the risk and increase the return on a traditional balanced managed fund. One of the key characteristics of such a hedge fund is that it has a low correlation with the balanced managed fund. The paper puts forward a new way of explaining correlation so that it can be more readily understood, and suggests methods of analysis for dealing with the fact that correlation is unstable. Volatility correlation is also examined because of its importance in reducing the risk of a portfolio.An outline of the characteristics and risks of three types of hedge funds, namely, long/short equity, convertible arbitrage and merger arbitrage, together with some questions investors might put to prospective hedge fund managers is given in Section 5.Some of the very basic statistical analysis techniques used in assessing the past performance of hedge funds are given in Section 6. Considerable emphasis is put on the need to examine daily return data as an insight into the quality of the manager's IT systems, his risk management, evidence of smoothing of returns, and to gain access to a higher number of data points for assessing the repeatability of performance.An entire section of the paper is devoted to gaining a clear understanding of a prospective hedge fund manager's volatility management strategy because of its importance in the context of the fee structure of hedge funds and its importance for assessing the ability of a hedge fund to reduce the risk and increase the returns of a balanced managed fund.Funds of hedge funds are examined in the final section, and the section concludes that large sophisticated institutional investors may wish to create a portfolio of hedge funds rather than invest in a fund of hedge funds.

Why Do Hedge Funds Avoid Disclosure? Evidence from Confidential 13F Filings

2013 ◽  
Vol 48 (5) ◽  
pp. 1499-1518 ◽  
Author(s):  
George O. Aragon ◽  
Michael Hertzel ◽  
Zhen Shi
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Abnormal Returns ◽  
Policy Debate ◽  
Current Policy ◽  
Proprietary Information ◽  
Front Running

AbstractWe study a sample of Form 13F filings where fund advisors seek confidential treatment for some or all of their 13(f)-reportable positions. Consistent with the hypothesis that managers seek confidentiality to protect proprietary information, we find that confidential positions earn positive and significant abnormal returns over the post-filing confidential period. We also find that managers are more likely to seek confidential treatment of illiquid positions that are more susceptible to front-running. Overall, our analysis highlights important benefits of reduced disclosure that are relevant to the current policy debate on hedge fund transparency.

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