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Hedge Fund
Scholarly Compositions - All Compositions |
Table of
Contents for O
:
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Offshore Hedge Funds: Survival &
Performance 1989-1995
by Stephen J. Brown, William N. Goetzmann, and Roger G. Ibbotson
NYU Stern School of Business & Yale School of Management
January 2, 1998
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On Default Correlation: A Copula
Function Approach
by David X. Li
The RiskMetrics Group
April, 2000
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On the Endogeneity of the
Mean-Variance Efficient Frontier
by R. A. Somerville and Paul G. J. O’Connell
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On the Frontier of Generating
Revealed Preference Choice Sets: An Efficient Approach
by David Scrogin, Richard Hofler, Kevin Boyle, & J. Walter Milon
University of Central Florida & University of Maine
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On the Performance of Hedge Funds
by Bing Liang
Weatherhead School of Management
Case Western Reserve University
May, 1998
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On Taking the ‘Alternative'
Route: Risks, Rewards and Performance Persistence of Hedge Funds
by Vikas Agarwal & Narayan Y. Naik
November, 1999
-
Optimal Hedge Fund Allocations:
Do Higher Moments Matter?
by Jan-Hein Cremers, Mark Kritzman, & Sebastien Page
September, 2004
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Optimal Mixing of Hedge Funds with Traditional
Investment Vehicles
by Noel Amenc & Lionel Martellini
EDHEC Graduate School of Business
February 15, 2003
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Optimal portfolio selection in a
Value-at-Risk framework
by Rachel Campbell, Ronald Huisman, & Kees Koedijk
Erasmus University Rotterdam
July, 2000
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Optimization of Conditional
Value-at-Risk
by Tyrrell Rockafellar & Stanislav Uryasev
September 15, 1999
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Option Pricing with Liquidity
Risk
by U. Cetin, R. Jarrow, P. Protter, & M. Warachka
June 8, 2002
-
An Option-Theoretic Prepayment
Model for Mortgages and Mortgage-Backed Securities
by Andrew
Kalotay, Deane Yang, & Frank J. Fabozzi
-
Outperformance of Sharpe ratio based strategies
by Morten
Mosegaard Christensen
September 16, 2005
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An Overview of Long-Short Equity
Investing
by Steven
F. Freed, ASA
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Offshore Hedge Funds: Survival &
Performance 1989-1995
by Stephen J. Brown, William N. Goetzmann, and Roger G. Ibbotson
NYU Stern School of Business & Yale School of Management
January 2, 1998
Abstract
We examine the performance of the off-shore hedge fund industry
over the period 1989 through 1995 using a database that includes
both defunct and currently operating funds. The industry is
characterized by high attrition rates of funds, low covariance
with the U.S. stock market, evidence consistent with positive
risk-adjusted returns over the time, but little evidence of
differential manager skill...
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On Default Correlation: A Copula
Function Approach
by David X. Li
The RiskMetrics Group
April, 2000
Abstract
This paper studies the problem of default correlation. We first
introduce a random variable called “time-until-default” to
denote the survival time of each defaultable entity or financial
instrument, and define the default correlation between two
credit risks as the correlation coefficient between their
survival times. Then we argue why a copula function approach
should be used to specify the joint distribution of survival
times after marginal distributions of survival times are derived
from market information, such as risky bond prices or asset swap
spreads...
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On the Endogeneity of the
Mean-Variance Efficient Frontier
by R. A. Somerville and Paul G. J. O’Connell
Abstract
The endogeneity of the efficient frontier in the mean-variance
model of
portfolio selection is commonly obscured in the portfolio
selection literature and
in widely used textbooks. The authors demonstrate this
endogeneity and discuss
the impact of parameter changes on the mean-variance efficient
frontier and on
the beta coefficients of individual assets...
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On the Frontier of Generating
Revealed Preference Choice Sets: An Efficient Approach
by David Scrogin, Richard Hofler, Kevin Boyle, & J. Walter Milon
University of Central Florida & University of Maine
Abstract
Deterministic criteria for generating choice sets are often used
by analysts confronting universal sets containing unwieldy
numbers of alternatives. For modeling destination choice,
exclusion rules defined by travel time, distance, or site
quality have a behavioral appeal, yet are fundamentally limited
by their one dimensional scope. To remedy this shortcoming while
maintaining the concept that trips require costly inputs to
yield utility generating outputs, we develop and test an
efficient site exclusion rule by estimating individual-specific
trip production functions using stochastic frontier models...
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On the Performance of Hedge Funds
by Bing Liang
Weatherhead School of Management
Case Western Reserve University
May, 1998
Abstract
This paper investigates hedge fund performance and risk. The
empirical evidence indicates that hedge funds differ
substantially from traditional investment vehicles such as
mutual funds. The funds with watermarks significantly outperform
the funds without watermarks. The average hedge fund returns are
related positively to incentive fees, the size of the fund, and
the lockup period. Hedge funds follow dynamic trading strategies
and have low systematic risk. There are low correlations among
different strategies. Compared with mutual funds, hedge funds
offer better risk-return trade-offs: they have higher Sharpe
ratios, lower mrket risks, and higher abnormal returns. In the
period of January 1994 to December 1996, most hedge funds
provide positive abnormal returns. Overall, hedge fund
strategies dominate mutual fund strategies, hence hedge funds
provide a more efficient investment opportunity set for
investors.
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On Taking the ‘Alternative'
Route: Risks, Rewards and Performance Persistence of Hedge Funds
by Vikas Agarwal & Narayan Y. Naik
November, 1999
Abstract
This paper provides a comprehensive analysis of the risk-return
characteristics, risk exposures, and performance persistence of
various hedge fund strategies using a database on hedge fund
indices and individual hedge fund managers. In a mean-variance
framework, we find that a combination of alternative investments
and passive indexing provides significantly better risk-return
tradeoff than passively investing in the different asset
classes. Using a broad asset class factor model, we find that
the hedge fund strategies outperform the benchmark by a range of
6% to 15% per year...
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Optimal Hedge Fund Allocations:
Do Higher Moments Matter?
by Jan-Hein Cremers, Mark Kritzman, & Sebastien Page
September, 2004
Abstract
Hedge funds have return peculiarities not commonly associated
with traditional
investment vehicles. Specifically, hedge funds seem more
inclined to produce return distributions with significantly
non-normal skewness and kurtosis. There is also growing
acceptance of the notion that investor preferences are better
represented by bilinear utility functions or S-shaped value
functions than by neo-classical utility functions such as power
utility...
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Optimal Mixing of Hedge Funds with Traditional
Investment Vehicles
by Noel Amenc & Lionel Martellini
EDHEC Graduate School of Business
February 15, 2003
Abstract
In this paper, we discuss the state-of-the art techniques for
optimal asset allocation to traditional and alternative
investment vehicles, and we specifically account for the
difficulties in estimating risk/return parameters from hedge
fund return data. We first present various techniques allowing
an investor to better assess the contrasted diversification
properties of hedge funds. In particular, we introduce a
multi-factor framework for the assessment of which funds should
be included for which portfolio. We also present various
competing models allowing investors to get a quantitative
estimate of the optimal fraction of a given portfolio that
should be allocated to hedge funds, in a context where only
imperfect estimates of hedge fund expected returns are
available. We not only discuss optimal strategic asset
allocation decisions; we also explain how tactical asset
decisions can also be made in a portfolio mixing traditional and
alternative investment vehicles. Finally, we show how hedge fund
can be used as portable alpha vehicles in a core/satellite
portfolio approach.
Visit www.EDHEC-Risk.com for the full
paper...
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Optimal portfolio selection in a
Value-at-Risk framework
by Rachel Campbell, Ronald Huisman, & Kees Koedijk
Erasmus University Rotterdam
July, 2000
Abstract
In this paper, we develop a portfolio selection model which
allocates financial assets by maximising expected return subject
to the constraint that the expected maximum loss should meet the
Value-at-Risk limits set by the risk manager. Similar to the
mean variance approach a performance index like the Sharpe index
is constructed. Further-more when expected returns are assumed
to be normally distributed we show that the model provides
almost identical results to the mean±variance approach...
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Optimization of Conditional
Value-at-Risk
by Tyrrell Rockafellar & Stanislav Uryasev
September 15, 1999
Abstract
A new approach to optimizing or hedging a portfolio of financial
instruments to reduce risk is presented and tested on
applications. It focuses on minimizing Conditional Value-at-Risk
CVaR rather than minimizing Value-at-Risk VaR, but portfolios
with low CVaR necessarily have low VaR as well. CVaR, also
called Mean Excess Loss, Mean Shortfall, or Tail VaR, is anyway
considered to be a more consistent measure of risk than VaR.
Central to the new approach is a technique for portfolio
optimization which calculates VaR and optimizes CVaR
simultaneously. This technique is suitable for use by investment
companies, brokerage firms, mutual funds, and any business that
evaluates risks. It can be combined with analytical or
scenario-based methods to optimize portfolios with large numbers
of instruments, in which case the calculations often come down
to linear programming or nonsmooth programming. The methodology
can be applied also to the optimization of percentiles in
contexts outside of finance.
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Option Pricing with Liquidity
Risk
by U. Cetin, R. Jarrow, P. Protter, & M. Warachka
June 8, 2002
Abstract
This paper provides a model for pricing options in an economy
with liquidity risk. Liquidity risk is modeled as a stochastic
supply curve for the underlying stock that depends on the size
of a trade. Consistent with the market microstructure
literature, large buys increase the purchase price while large
sales decrease the selling price...
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An Option-Theoretic Prepayment
Model for Mortgages and Mortgage-Backed Securities
by Andrew
Kalotay, Deane Yang, & Frank J. Fabozzi
Abstract
We introduce a new approach for modeling the prepayments of a
mortgage pool and show how it can be used to value mortgage
pools and agency mortgage-backed securities. We describe the
full spectrum of refinancing behavior using a notion of
refinancing efficiency. Our approach has two distinguishing
features: (1) our primary focus is on understanding the market
value of a mortgage, in contrast with standard models that
strive (often unsuccessfully) to predict future cash flows, and
(2) we use two separate yield curves, one for discounting
mortgage cash flows and the other for MBS cash flows...
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Outperformance of Sharpe ratio based strategies
by Morten
Mosegaard Christensen
September 16, 2005
Abstract
We show that strategies maximizing the instantaneous Sharpe
ratio can be out-
performed in certain financial market models if they deviate
significantly from the
growth optimal portfolio. Investors aiming for high Sharpe
ratios should use an
approximation procedure to approach the desired level of risk...
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A
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X Y Z
| 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.
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