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 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.

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.

The Dynamis Fund: An Energy Hedge Fund

2017 ◽  
pp. 1-12
Author(s):  
George (Yiorgos) Allayannis ◽  
Mark R. Eaker ◽  
Alec Bocock
Keyword(s):  
Performance Evaluation ◽  
Asset Management ◽  
Hedge Funds ◽  
Mutual Fund ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Futures Options ◽  
Pros And Cons ◽  
Oil Sector ◽  
Evaluation Techniques

Fred Bocock was examining the performance of the Energy Hedge Fund and the Energy Portfolio, a hedge fund and a mutual fund respectively, which he manages. Bocock had become increasingly aware that absolute returns or relative returns (returns relative to a benchmark) may not adequately capture his performance and some measure of risk-adjusted performance was necessary. The Dynamis Energy Hedge Fund extends the discussion of performance evaluation into the hedge fund arena. (See “Zeus Asset Management,” UVA-F-1232, for an examination of performance evaluation techniques in the mutual funds arena.) More broadly, the case engages students in discussions on what hedge funds are, what investment strategies they use, and who their investors are. Since the portfolio manager of Dynamis manages both an oil sector equity mutual fund and an oil sector hedge fund, the case allows for a comparison between a hedge fund and a mutual fund. Students should consider the pros and cons of evaluating the performance of the oil stock mutual fund against a number of oil sector stock indices as well as against a number of generic indices, such as the S&P 500 Index. The use of futures, options, shorts, and leverage by hedge funds makes it a lot more difficult to measure their performance. The case comes with a spreadsheet that contains data on the energy mutual fund, the Dynamis hedge fund, and several relevant indices.

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 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.

scholarly journals Comparing Hedge Funds: Highest Return Strategy

2021 ◽  
Vol 23 ◽  
Author(s):  
Vuk Janus ◽  
Greyson Robin Meek
Keyword(s):  
Interest Rates ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Fold Increase ◽  
Equity Market ◽  
Annual Growth Rate ◽  
Investment Strategies ◽  
Individual Strategy ◽  
Low Interest Rates ◽  
Fund Research

Since 1997, the hedge fund industry has grown at a compounded annual growth rate of 16.07%, resulting in a 26-fold increase from its original value to its present value of $3.1 trillion Assets Under Management. This study researched the varying investment strategies used by hedge funds to determine the strategy that provides the highest returns for its investors. From the previous literature, the study identified Long/Short Equity, Global Macro, Arbitrage, Event Driven, and Cross-Asset Multi-Strategy as viable and relevant investment approaches. Using hedge fund index data from Bloomberg, Hedge Fund Research, Eureka Hedge, Barclay’s, and Credit Suisse, returns for each respective strategy were collected and compared against the Bloomberg Global Hedge Fund (BHEDGE) Index and the S&P 500 Index. Alpha adjusted returns for each strategy were later calculated and plotted against the average weighted returns of each individual strategy. The results of this study show that the L/S Equity strategy provided the highest returns for its investors. Specifically, only the L/S Equity strategy outperformed the BHEDGE Index by a narrow margin, while all other strategies provided negative alpha figures. All hedge fund strategies outperformed the overall equity market on a year-to-date basis, however, provided negative alpha returns when compared to the S&P 500 1-Year market gains. This deficit between hedge funds and the overall equity market can be attributed to the COVID-19 pandemic and its inflationary effects through low interest rates, market stimulus packs, and an increased money supply.

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 The Nexus Between Hedge Fund Size and Risk-Adjusted Performance

2021 ◽  
Vol 66 (3) ◽  
pp. 40-56
Author(s):  
Daniela Catan
Keyword(s):  
Hedge Funds ◽  
Inverse Relationship ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Previous Evidence ◽  
Fund Size ◽  
The Relationship

Abstract This paper explores the relationship between hedge fund size and risk-adjusted performance employing a data sample of 245 US hedge funds classified into eight different investment strategies. The studied period spans from January 2005 to February 2021, with calculations performed both on the whole coverage period as well as three sub-periods, to isolate the pre-crisis, crisis, and post-crisis funds’ behavior. Similar to previous evidence found in the literature, the results reveal an inverse relationship between hedge fund size and risk-adjusted performance (as measured by the Sharpe, Treynor and Black-Treynor ratios) in most of the cases.

Hedge Funds Fundamentals

2017 ◽  
Author(s):  
H. Kent Baker ◽  
Greg Filbeck
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Fund Performance ◽  
Investment Strategies ◽  
Intended Audience ◽  
History Of ◽  
Background Material ◽  
Fund Investment ◽  
Hedge Fund Performance ◽  
Distinguishing Features

This chapter provides background material for understanding the multifaceted nature of hedge funds. The first section begins by defining a hedge fund, followed by a discussion of distinguishing characteristics, benefits and risks, history of hedge funds, hedge fund investment strategies, funds of funds, hedge fund performance, and hedge fund biases, including selection bias, survivorship bias, backfill bias, and liquidation bias. The next section discusses the purpose of the book followed by sections on its distinguishing features and the intended audience. The chapter then outlines the six major parts of the book, including an abstract for each of the remaining 29 chapters. These six parts are (1) background, (2) structure of hedge funds, (3) investment strategies of hedge funds, (4) risk and regulation, (5) hedge fund performance, and (6) issues, trends, and future prospects of hedge funds. The final section offers a summary and conclusions.

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