scholarly journals Hedge Funds Development and their Role in Economic Crises

2013 ◽  
Vol 60 (1) ◽  
pp. 168-181
Author(s):  
Theodosios Palaskas ◽  
Chrysostomos Stoforos ◽  
Costantinos Drakatos
Keyword(s):  
Hedge Funds ◽  
Emerging Market ◽  
Rapid Development ◽  
Critical Role ◽  
Hedge Fund ◽  
Subprime Crisis ◽  
Economic Crises ◽  
Market Strategy ◽  
Geographic Expansion ◽  
The Impact

Abstract The rapid development of hedge funds and their emanating critical role in the financial markets and the financial system globally, combined with the increased frequency of economic crises during the last 25 years, brought them to the centre of discussions concerning the following issue: «To what extent the operation of hedge funds can affect the birth, peak and even geographic expansion of economic crises?». In this context, the present paper aims to contribute to the limited and sporadic discussion of whether the hedge funds could be held responsible for economic crises. To this extend the growth and the impact of hedge funds on financial crises is analysed and evaluated using the HFR database -in their birth, aggravation or even geographic expansion- both from a historical perspective and in relation to the 2007-today crisis. Based on the evidence presented in this paper, hedge funds cannot be blamed for the birth of the crises of the last 25 years. Comparing the data across the different crises, it becomes obvious that, with the exception of the 2007 subprime crisis, where almost all hedge fund strategies suffered considerable losses, in all other crises studied in the present paper, the hedge fund strategies with a negative return were the ones that had an exposure to the specific sector and/or region that was in the centre of the crisis i.e. Emerging market strategy presented substantial negative monthly performance over the Asian crisis, Convertible arbitrage strategy was affected by the dot-com crisis, etc.

scholarly journals Risk Analysis Of Hedge Funds: A Markov Switching Model Analysis

2013 ◽  
Vol 30 (1) ◽  
pp. 243 ◽  
Author(s):  
Frederic Teulon ◽  
Khaled Guesmi ◽  
Saoussen Jebri
Keyword(s):  
Risk Analysis ◽  
Hedge Funds ◽  
Regime Switching ◽  
Emerging Market ◽  
Markov Switching ◽  
Hedge Fund ◽  
Markov Switching Model ◽  
Market Strategy ◽  
Switching Model ◽  
High Volatility

The paper applies Markov Regime Switching GARCH Model (SW-GARCH) to investigate the volatility behavior of strategies hedge fund monthly returns for the period 1997-2011. The results highlight two different regimes: The first regime is characterized by a high volatility for all strategies hedge fund monthly returns. The second is characterised by lower volatility and positive average returns (except Emerging Market strategy). Our results helped to capture even the short-lived crises along with the material crises of 2001 and 2008.

Hedge Fund Activism vs Other Activist Investors

2021 ◽  
pp. 252-282
Author(s):  
Ulf von Lilienfeld-Toal ◽  
Jan Schnitzler
Keyword(s):  
Empirical Analysis ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Empirical Literature ◽  
Comparative Approach ◽  
Large Sample ◽  
Shareholder Proposals ◽  
Target Firms ◽  
Hedge Fund Activism ◽  
The Impact

This chapter reviews the growing empirical literature on shareholder activism by hedge funds. The aim is a comparative approach contrasting the impact of hedge fund activism on target firms with outcomes for other types of activist investors. Following recent research, the chapter provides an empirical analysis based on the disclosure of equity blockholdings by activist investors in a large sample of all US listed companies. In addition, it summarizes which types of investors engage in other events linked to activism, such as takeovers, proxy contests, or shareholder proposals. Overall, there is evidence that not only hedge funds but also other types of investors can be effective monitors, but there are nuanced differences with respect to targeting decisions and payout policies.

Are hedge fund returns affected by media coverage of macroeconomic news?

2019 ◽  
Vol 36 (3) ◽  
pp. 427-439
Author(s):  
Sandip Dutta ◽  
James Thorson
Keyword(s):  
Hedge Funds ◽  
Media Coverage ◽  
Hedge Fund ◽  
Real Sector ◽  
Macroeconomic News ◽  
Content Type ◽  
Fund Managers ◽  
News Announcements ◽  
Hedge Fund Returns ◽  
The Impact

Purpose Extant literature suggests that the difficulty associated with the interpretation of macroeconomic news announcements by the market in general in different economic environments, might be the reason why most studies do not find any significant relationship between real-sector macroeconomic variables and financial asset returns. This paper aims to use a different approach to measure macroeconomic news. The objective is to examine if a different measure of a macroeconomic news variable, constructed from media coverage of the same, significantly affects hedge fund returns. Design/methodology/approach The authors use a news index for unemployment, which is a real-sector variable, constructed from newspaper coverage of unemployment announcements and examine its impact on hedge fund returns. Findings Contrary to the other studies that examine the impact of macroeconomic news on hedge fund returns, the authors find that media coverage of unemployment news announcements significantly affects hedge fund returns. Practical implications Overall, this paper demonstrates that the manner in which the market interprets macroeconomic news announcements in different economic environments is probably a more relevant factor for hedge funds and is more likely to impact hedge fund returns. In conjunction with variables – constructed from media coverage of unemployment news announcements – that factor in the manner of interpretation, it is found that surprises also matter for hedge fund returns. This is an important consideration for hedge fund managers as well. Originality/value To the best of the authors’ knowledge, this is the first study that examines the impact of media coverage of macroeconomic news announcements on hedge fund returns and finds significantly different results with real-sector macro variables.

Margins and Hedge Fund Contagion

2011 ◽  
Vol 46 (5) ◽  
pp. 1227-1257 ◽  
Author(s):  
Evan Dudley ◽  
Mahendrarajah Nimalendran
Keyword(s):  
Hedge Funds ◽  
Risk Measures ◽  
Hedge Fund ◽  
Subprime Crisis ◽  
Order Of Magnitude ◽  
Funding Risk

AbstractFunding risk measures the extent to which a fund can borrow money by posting collateral. Using a novel measure of funding risk based on futures margins, we are able to empirically identify the mechanism by which changes in funding risk affect the likelihood of contagion. An increase in margins of the order of magnitude observed during the subprime crisis increases the probability of contagion among certain types of funds by up to 34%. Our analysis shows that some types of hedge funds are more vulnerable to contagion than others. Our results also suggest that policies that limit the magnitude of changes in margins over short periods of time may reduce the likelihood of contagion among hedge funds.

The Oxford Handbook of Hedge Funds

2021 ◽  
Keyword(s):  
Hedge Funds ◽  
Optimal Taxation ◽  
Private Equity ◽  
Hedge Fund ◽  
Global Perspective ◽  
Fund Flows ◽  
Theoretical Approaches ◽  
The Us ◽  
Hedge Fund Activism ◽  
The Impact

The Oxford Handbook of Hedge Funds provides a comprehensive look at the hedge fund industry from a global perspective. The chapters are organized into five main parts. After the introductory chapter in Part I, Part II begins in Chapter 2 with an analysis of the main factors that have affected the operation of hedge funds. Chapter 3 explains the concept of hedge fund flows. Chapter 4 examines hedge fund manager fees and contracts. Part III focuses on different types of hedge fund strategies. The broad array of strategies are summarized in Chapter 5. Chapter 6 empirically examines the performance of hedge fund strategies. Chapter 7 compares the strategies of hedge funds to private equity funds. Chapter 8 examines hedge fund herding. Chapter 9 examines hedge fund commodity trading advisors and leverage. Chapter 10 examines financial technology in hedge fund strategies. In Part IV, hedge fund activism in the US is examined in Chapter 11. The US and international literature on hedge fund activism is reviewed in different perspectives in Chapters 12 and 13. Case studies are provided in Chapter 14. The impact of activism on large company innovation is discussed in Chapter 15. In Part V, Chapter 16 examines whether hedge funds may engage in misreporting and fraud. Chapter 17 reviews work on hedge fund misconduct and detection. Chapter 18 discusses compliance among hedge funds. Chapter 19 examines theoretical approaches to hedge fund regulation. Chapter 20 examines optimal taxation. Chapter 21 examines hedge funds from a political economy context.

scholarly journals Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance

2005 ◽  
Vol 40 (3) ◽  
pp. 493-517 ◽  
Author(s):  
Guillermo Baquero ◽  
Jenke ter Horst ◽  
Marno Verbeek
Keyword(s):  
Hedge Funds ◽  
Statistical Significance ◽  
Hedge Fund ◽  
Sampling Bias ◽  
Performance Persistence ◽  
Total Risk ◽  
Investment Style ◽  
Look Ahead ◽  
Hedge Fund Performance ◽  
The Impact

AbstractWe analyze the performance persistence in hedge funds taking into account look-ahead bias (multi-period sampling bias). We model liquidation of hedge funds by analyzing how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. In contrast to earlier results for mutual funds, the impact of look-ahead bias is exacerbated for hedge funds due to their greater level of total risk. At the four-quarter horizon, look-ahead bias can be as much as 3.8%, depending upon the decile of the distribution. We find positive persistence in hedge fund quarterly returns after correcting for investment style. The empirical pattern at the annual level is also consistent with positive persistence, but its statistical significance is weak.

A Review of Hedge Fund Activism: Impact on Shareholders vs. Stakeholders

2021 ◽  
pp. 282-317
Author(s):  
Hadiye Aslan
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Spillover Effects ◽  
Empirical Literature ◽  
Target Firm ◽  
Market Strategy ◽  
Target Firms ◽  
Product Market Strategy ◽  
Hedge Fund Activism ◽  
Rival Firms

This chapter reviews the growing empirical literature on shareholder activism by hedge funds, summarizing the sources and nature of the activist data and examining the evidence on target firm outcomes. Target firms do not exist in a vacuum, however; they have industry competitors, suppliers, customers, debtholders, and employees. Hedge fund activists often demand a reformulation of the target firm’s product market strategy to enhance its ability to earn inframarginal profits. This positive strategic effect may be especially significant for target firms that are economically distressed and facing predatory moves from deep-pocketed rival firms to induce exit. The putative significant effects of hedge fund activism on targets should generate spillover effects on their stakeholders. The chapter considers these spillover effects in a number of well-defined categories: industry rivals, customers, suppliers, debtholders, and employees.

scholarly journals Applications of Game- Theory in Active Strategic Portfolio Management- the Case of Hedge - Funds Adaptation for the Real Constraints in Romanian Capital Market

2021 ◽  
Vol 27 (2) ◽  
pp. 100-104
Author(s):  
Eugen-Silviu Vrăjitoru ◽  
Mircea Boscoianu ◽  
Elena-Corina Boscoianu
Keyword(s):  
Game Theory ◽  
Portfolio Management ◽  
Capital Market ◽  
Hedge Funds ◽  
Emerging Market ◽  
Hedge Fund ◽  
Alternative Strategies ◽  
Risk Return ◽  
Active Portfolio Management ◽  
Fund Portfolio

Abstract The application is focused on strategies for portfolio management in the case of hedge-funds for emerging markets taking into account the severe constraints for a real-world implementation. In the case of Romanian capital market, the design of a hedge-fund architecture should respond to the typical constraints for using alternative strategies. Beyond the liquidity problems there exits only a limited set of alternative instruments and strategies with impact on diversification, on the functionality and efficiency. The objective is to develop a better understanding of alternative actions and innovations for real adaptation of the architecture of a hedge-fund at these emerging market conditions, especially the lack of short and hedging instruments and the liquidity problems. Based on this new innovative framework that could capture the value of multiple rotating satellite sub-portfolio paradigm, as an active strategy, it is possible to build a different paradigm for active portfolio management in a dynamic manner. Based on an adequate dynamic of rotation of these sub-portfolios it results an optimal risk- return-liquidity profile for the whole hedge-fund portfolio, adaptable for different contexts.

Adjustment of MNE Geographic Market Strategy in Responding to the Rise of Local Competitors in an Emerging Market

2018 ◽  
pp. 310-332
Author(s):  
J.T. Li ◽  
Zhenzhen Xie
Keyword(s):  
Emerging Economies ◽  
Emerging Market ◽  
Export Intensity ◽  
Market Strategy ◽  
Weak Institutions ◽  
Export Volume ◽  
Mne Subsidiary ◽  
The Impact ◽  
Market Strategies ◽  
Mne Subsidiaries

Emerging economies are characterized by weak institutions but also a very dynamic competitive landscape. This chapter proposes that MNE subsidiaries may have to adjust their geographic market strategies as a response to the rise of local competitors. Information on 25,161 manufacturing subsidiaries exporting from China during 2005–2007 was analyzed to show that the export intensity of an MNE subsidiary first increases and then decreases with the export volume of the subsidiary’s local Chinese competitors in the same industry and with the same destination country. Subsidiaries that are older or more tightly controlled by their MNE parents are less likely to respond to the exporting of their Chinese competitors by changing their exporting intensities. Better developed market-supporting institutions make MNE subsidiaries more sensitive to the impact of Chinese local exporters.

A Tale of Two Hedge Funds: Magnetar and Peloton

2017 ◽  
pp. 1-23
Author(s):  
David P. Stowell ◽  
Stephen Carlson
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Credit Default Swap ◽  
Investment Banks ◽  
Subprime Crisis ◽  
Credit Crisis ◽  
Mortgage Loans ◽  
Derivative Instruments ◽  
New Ideas ◽  
Mortgage Securities

Hedge fund Magnetar Capital had returned 25 percent in 2007 with a strategy that posed significantly lower risk to investors than the S&P 500. Magnetar had made more than $1 billion in profit by noticing that the equity tranche of CDOs and CDO-derivative instruments were relatively mispriced. It took advantage of this anomaly by purchasing CDO equity and buying credit default swap (CDS) protection on tranches that were considered less risky. Now it was the job of Alec Litowitz, chairman and chief investment officer, to provide guidance to his team as they planned next year's strategy, evaluate and prioritize their ideas, and generate new ideas of his own. An ocean away, Ron Beller was contemplating some very different issues. Beller's firm, Peloton Partners LLP, had been one of the top-performing hedge funds in 2007, returning in excess of 80 percent. In late January 2008 Beller accepted two prestigious awards at a black-tie EuroHedge ceremony. A month later, his firm was bankrupt. Beller shorted the U.S. housing market before the subprime crisis hit, and was paid handsomely for his bet. After the crisis began, however, he believed that prices for highly rated mortgage securities were being unfairly punished, so he decided to go long AAA-rated securities backed by Alt-A mortgage loans (between prime and subprime), levered 9x. The trade moved against Peloton in a big way on February 14, 2008, causing $17 billion in losses and closure of the firm.This case analyzes the strategies of the two hedge funds, focusing on how money can be made and lost during a financial crisis. The role of investment banks as lenders to hedge funds such as Peloton is explored, as well as characteristics of the CDO market and an array of both mortgage-related and credit protection-related instruments that were actively used (for better or worse) by hedge funds during the credit crisis of 2007 and 2008.

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