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.

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.

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.

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.

scholarly journals The Effect of Investment Constraints on Hedge Fund Investor Returns

2018 ◽  
Vol 54 (4) ◽  
pp. 1539-1571 ◽  
Author(s):  
Juha Joenväärä ◽  
Robert Kosowski ◽  
Pekka Tolonen
Keyword(s):  
Real World ◽  
Hedge Funds ◽  
Liquidity Constraints ◽  
Hedge Fund ◽  
Fund Performance ◽  
Performance Persistence ◽  
Investor Returns ◽  
Fund Size ◽  
Hedge Fund Performance ◽  
Investment Constraints

This paper examines the effect of real-world, investor-level investment constraints, including several that have not been studied before, on hedge fund performance and its persistence. Using a large consolidated database, we demonstrate that hedge fund performance persistence is significantly reduced when rebalancing rules reflect fund size restrictions and liquidity constraints but remains statistically significant at higher rebalancing frequencies. Hypothetical investor portfolios that incorporate additional minimum diversification constraints, minimum investment requirements, and focus on open funds suggest that the performance and its persistence documented in earlier studies of hedge funds is not easily exploitable, especially by large investors.

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.

scholarly journals Recovering Delisting Returns of Hedge Funds

2014 ◽  
Vol 49 (3) ◽  
pp. 797-815 ◽  
Author(s):  
James E. Hodder ◽  
Jens Carsten Jackwerth ◽  
Olga Kolokolova
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Portfolio Holdings ◽  
Prior Performance ◽  
Monthly Return ◽  
Funds Of Funds

AbstractNumerous hedge funds stop reporting each year to commercial databases, wreaking havoc with analyzing investment strategies that incur the unobserved delisting return. We use estimated portfolio holdings for funds-of-funds to back out estimated hedge-fund delisting returns. For all exiting funds, the estimated mean delisting return is insignificantly different from the average monthly return for live hedge funds. However, funds with poor prior performance and no clearly stated delisting reason had a significantly negative estimated mean delisting return of -5.97%, suggesting that a shock to their returns “tips them over the edge” and leads to delisting.

Evaluating Hedge Fund Performance

2017 ◽  
Author(s):  
David M. Smith
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Fund Performance ◽  
Equity Market ◽  
Investment Strategies ◽  
Worst Case ◽  
Security Selection ◽  
Sharpe Ratios ◽  
Hedge Fund Performance ◽  
Fund Portfolio

A diverse set of measures allow investors to evaluate hedge fund portfolio managers’ performance across different dimensions. The various measures quantify the effectiveness of security selection; account for investor flows, operating risk, and worst-case investment scenarios; net out benchmark and peer-fund performance; and control for risk factors that are unique to hedge fund investment strategies. Hedge fund return information in published databases is usually self-reported, which is a conflict of interest that produces several reporting biases and inflated published average returns. After adjusting for these biases, hedge fund average returns trail equity market returns and in fact almost exactly equal U.S. Treasury bill average returns between January 1994 and March 2016. Yet, after risk adjustment, the hedge fund performance picture brightens. In the aggregate, hedge funds have higher Sharpe ratios and multifactor alphas, and lower maximum drawdown levels than equity market benchmarks.

Issues in Hedge Fund Research

2017 ◽  
Author(s):  
Thuy Bui ◽  
Abhishek Ganguly
Keyword(s):  
Performance Measurement ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Financial Innovation ◽  
Investment Strategies ◽  
Regulatory Oversight ◽  
Fund Managers ◽  
Disclosure Requirements ◽  
Measurement Biases ◽  
Fund Research

This chapter explores the various issues and challenges that confront financial economists researching hedge funds. Besides being complex investment vehicles, hedge funds are private entities that are subject to little regulation and disclosure requirements and are less transparent by nature. Such lax regulatory oversight also enables hedge funds to become the venues for financial innovation and cutting-edge investment strategies. As a result, research in hedge funds not only attempts to keep up with the continuous advancement in strategies employed by hedge fund managers but also suffers from several data issues, performance measurement biases, and endogeneity issues. These biases in hedge fund research considerably limit the accuracy and, more importantly, the generalizability of the findings. Thus, users of hedge fund research should be mindful of its limitations.

Global Derivatives Hedge Fund Strategies

2017 ◽  
Author(s):  
Christopher J. Barnes ◽  
Ehsan Nikbakht ◽  
Andrew C. Spieler
Keyword(s):  
Interest Rates ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Strategies ◽  
Related Factors ◽  
Managed Futures ◽  
Country Level ◽  
Investment Manager ◽  
High Level ◽  
Exchange Rates Volatility

Hedge funds represent discretionary pools of capital that have very flexible investment strategies. Some funds allocate capital to derivative-based strategies on a global basis, loosely referred to as global macro funds. These investments are typically high-level, directional views on exchange rates, volatility, interest rates and other macro-related factors. In short, this “go anywhere” strategy often uses futures, forwards, and options on equities as well as interest rates and currencies. The investment manager employs top-down investments by placing high-level bets at the country level as well as taking positions in stock, currency, and derivatives on particular countries based on economic views. Many global macro funds increasingly use systematic managed futures, although fewer funds follow a discretionary managed futures strategy.

The Relationship between Hedge Fund Performance and Stock Market Sentiment

2018 ◽  
Vol 21 (03) ◽  
pp. 1850016 ◽  
Author(s):  
Yao Zheng ◽  
Eric Osmer
Keyword(s):  
Stock Market ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Investor Sentiment ◽  
Dynamic Effect ◽  
Fund Performance ◽  
Market Sentiment ◽  
Hedge Fund Returns ◽  
Hedge Fund Performance ◽  
The Relationship

We examine the dynamic effect of aggregate stock market sentiment on the performance of various hedge fund styles. We find that hedge funds typically perform better during periods of optimistic sentiment and that for different hedge fund styles there is a differential response of hedge fund returns to positive and negative sentiment shocks. We also find that changes in aggregate investor sentiment have a larger effect on hedge fund performance during periods of high conditional volatility. Our results suggest there is a strong asymmetry in the relationship between hedge fund performance and investor sentiment.

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