FREE ACCESS!
Subscribe for
Free Access
to over 4000+
pages of Profiles and Top
20 Rankings.
No obligation ever.
|
|
|
|
|
| |
Hedge Fund
Scholarly Compositions - Featured Authors
select biographies of scholarly composition contributors
|
|
click here to
contribute your scholarly composition and biography |
| |
|
|
|
|
Value at Risk and the Cross-Section of Hedge Fund Returns
by Turan G. Bali, Suleyman Gokcan, & Bing Liang
2006
Abstract
Using two large hedge fund databases, this paper empirically
tests the presence and significance of a cross-sectional
relation between hedge fund returns and value at risk (VaR). The
univariate and bivariate portfolio-level analyses as well as the
fund-level regression results indicate a significantly positive
relation between VaR and the cross-section of expected returns
on live funds. During the period of January 1995 to December
2003, the live funds with high VaR outperform those with low VaR
by an annual return difference of 9%. This risk-return tradeoff
holds even after controlling for age, size, and liquidity
factors. Furthermore, the risk profile of defunct funds is found
to be different from that of live funds. The relation between
downside risk and expected return is found to be negative for
defunct funds because taking high risk by these funds can wipe
out fund capital, and hence they become defunct. Meanwhile,
voluntary closure makes some well performed funds with large
assets and low risk fall into the defunct category. Hence, the
risk-return relation for defunct funds is more complicated than
what implies by survival. We demonstrate how to distinguish live
funds from defunct funds on an ex ante basis. A trading rule
based on buying the expected to live funds and selling the
expected to disappear funds provides an annual profit of 8-10%
depending on the investment horizons.
View entire composition
▲
top
|
|
|
Alternative Approaches to Estimating VAR for Hedge Fund
Portfolios
by Turan G. Bali & Suleyman Gokcan
April 2004
Abstract
This chapter compares four different approaches to estimating
value-at-risk (VAR) for hedge fund portfolios. We focus on
approaches that are based on the thin-tailed normal, fat-tailed
generalised error distributions (GEDs), an extreme value
approach that approximates the tails of the return distribution
asymptotically, and the Cornish-Fisher (CF) expansion that takes
into account skewness and kurtosis of the empirical
distribution. The main difficulty common to all these VAR models
is the estimation of the required quantile of the loss
distribution, since there is no analytical representation of
this distribution. The VAR numbers calculated by a specific
methodology are compared to the actual losses. The results
indicate that accuracy is rather poor for VAR methods relying
only on the first two moments of the loss distribution. The
inclusion of higher moments through the CF expansion results in
more accurate estimates of the actual VAR thresholds.
View entire composition
▲
top
|
|
|
| HEDGE FUND RISK AND OTHER
DISCLOSURES |
Hedge funds, including fund of funds (“Hedge
Funds”), are unregistered private investment partnerships, funds or
pools that may invest and trade in many different markets,
strategies and instruments (including securities, non-securities and
derivatives) and are NOT subject to the same regulatory requirements
as mutual funds, including mutual fund requirements to provide
certain periodic and standardized pricing and valuation information
to investors. There are substantial risks in investing in Hedge
Funds. Persons interested in investing in Hedge Funds should
carefully note the following:
- Hedge Funds represent speculative investments and involve a
high degree of risk. An investor could lose all or a substantial
portion of his/her investment. Investors must have the financial
ability, sophistication/experience and willingness to bear the
risks of an investment in a Hedge Fund.
- An investment in a Hedge Fund should be discretionary capital
set aside strictly for speculative purposes.
- An investment in a Hedge Fund is not suitable or desirable for
all investors. Only qualified eligible investors may invest in
Hedge Funds.
- Hedge Fund offering documents are not reviewed or approved by
federal or state regulators
- Hedge Funds may be leveraged (including highly leveraged) and
a Hedge Fund’s performance may be volatile
- An investment in a Hedge Fund may be illiquid and there may be
significant restrictions on transferring interests in a Hedge
Fund. There is no secondary market for an investor’s investment in
a Hedge Fund and none is expected to develop.
- A Hedge Fund may have little or no operating history or
performance and may use hypothetical or pro forma performance
which may not reflect actual trading done by the manager or
advisor and should be reviewed carefully. Investors should not
place undue reliance on hypothetical or pro forma performance.
- A Hedge Fund’s manager or advisor has total trading authority
over the Hedge Fund.
- A Hedge Fund may use a single advisor or employ a single
strategy, which could mean a lack of diversification and higher
risk.
- A Hedge Fund (for example, a fund of funds) and its managers
or advisors may rely on the trading expertise and experience of
third-party managers or advisors, the identity of which may not be
disclosed to investors
- A Hedge Fund may involve a complex tax structure, which should
be reviewed carefully.
- A Hedge Fund may involve structures or strategies that may
cause delays in important tax information being sent to investors.
- A Hedge Fund may provide no transparency regarding its
underlying investments (including sub-funds in a fund of funds
structure) to investors. If this is the case, there will be no way
for an investor to monitor the specific investments made by the
Hedge Fund or, in a fund of funds structure, to know whether the
sub-fund investments are consistent with the Hedge Fund’s
investment strategy or risk levels.
- A Hedge Fund may execute a substantial portion of trades on
foreign exchanges or over-the-counter markets, which could mean
higher risk.
- A Hedge Fund’s fees and expenses-which may be substantial
regardless of any positive return- will offset the Hedge Fund’s
trading profits. In a fund of funds or similar structure, fees are
generally charged at the fund as well as the sub-fund levels;
therefore fees charged investors will be higher that those charged
if the investor invested directly in the sub-fund(s).
- Hedge Funds are not required to provide periodic pricing or
valuation information to investors.
- Hedge Funds and their managers/advisors may be subject to
various conflicts of interest.
The above general
summary is not a complete list of the risks and other important
disclosures involved in investing in Hedge Funds and, with respect
to any particular Hedge Fund, is subject to the more complete and
specific disclosures contained in such Hedge Fund’s respective
offering documents. Before making any investment, an investor should
thoroughly review a Hedge Fund’s offering documents with the
investor’s financial, legal and tax advisor to determine whether an
investment in the Hedge Fund is suitable for the investor in light
of the investor’s investment objectives, financial circumstances and
tax situation.
All performance information is believed
to be net of applicable fees unless otherwise specifically noted. No
representation is made that any fund will or is likely to achieve
its objectives or that any investor will or is likely to achieve
results comparable to those shown or will make any profit at all or
will be able to avoid incurring substantial losses. Past performance
is not necessarily indicative, and is no guarantee, of future
results.
The information on the Site is intended for
informational, educational and research purposes only. Nothing on
this Site is intended to be, nor should it be construed or used as,
financial, legal, tax or investment advice, be an opinion of the
appropriateness or suitability of an investment, or intended to be
an offer, or the solicitation of any offer, to buy or sell any
security or an endorsement or inducement to invest with any fund or
fund manager. No such offer or solicitation may be made prior to the
delivery of appropriate offering documents to qualified investors.
Before making any investment, you should thoroughly review the
particular fund’s confidential offering documents with your
financial, legal and tax advisor and conduct such due diligence as
you (and they) deem appropriate. We do not provide investment advice
and no information or material on the Site is to be relied upon for
the purpose of making investment or other decisions. Accordingly, we
assume no responsibility or liability for a ny investment decisions
or advice, treatment, or services rendered by any investor or any
person or entity mentioned, featured on or linked to the Site.
The information on this Site is as of the date(s) indicated,
is not a complete description of any fund, and is subject to the
more complete disclosures and terms and conditions contained in a
particular fund's offering documents, which may be obtained directly
from the fund. Certain of the information, including investment
returns, valuations, fund targets and strategies, has been supplied
by the funds or their agents, and other third parties, and although
believed to be reliable, has not been independently verified and its
completeness and accuracy cannot be guaranteed. No warranty, express
or implied, representation or guarantee is made as to the accuracy,
validity, timeliness, completeness or suitability of this
information.
Any indices and other financial benchmarks
shown are provided for illustrative purposes only, are unmanaged,
reflect reinvestment of income and dividends and do not reflect the
impact of advisory fees. Investors cannot invest directly in an
index. Comparisons to indexes have limitations because indexes have
volatility and other material characteristics that may differ from a
particular hedge fund. For example, a hedge fund may typically hold
substantially fewer securities than are contained in an index.
Indices also may contain securities or types of securities that are
not comparable to those traded by a hedge fund. Therefore, a hedge
fund’s performance may differ substantially from the performance of
an index. Because of these differences, indexes should not be relied
upon as an accurate measure of comparison.
|
|
