Hedge Funds

Hedge Funds are extensively cited as the main actors responsible for the financial crisis erupted in the latest decades. Their natural characteristic for secrecy and their fame for high propensity towards risks, together with the ample use of leverage, help to explain why these operators are often indicated as the main cause for the increase in markets' volatility and instability. The paper analyses the nature of these institutions and their distinctive characteristics: main investment strategies, performance measurement tools and typical organization structures. The second part of the work examines the advantages that both academics and professionals recognize to the hedge fund presence on the markets: improved price efficiency, increased market liquidity and, above all, continuing innovation. This part is followed by the analysis of the critical aspects that cause them to be on trial for any situation of financial market distress and turbulence. In particular, the study analyses the role of hedge funds in the present global economic crisis. The final part of the paper focuses on considerations regarding the present debate, which divides the financial community, on the opportunity of introducing specific regulation for the hedge fund industry.

Emerging market policy makers have been concerned about the financial stability implications of financial globalisation. These concerns are focused on behaviour under stressed conditions. Do tail events in the home country trigger off extreme responses by foreign investors -are foreign investors `fair weather friends'? In this, is there asymmetry between the response of foreign investors to very good versus very bad days? Do foreign investors have a major impact on domestic markets through large inflows or outflows -are they 'big fish in a small pond'? Do extreme events in world markets induce extreme behaviour by foreign investors, thus making them vectors of crisis transmission? We propose a modified event study methodology focused on tail events, which yields evidence on these questions. The results, for India, do not suggest that financial globalisation has induced instability on the equity market.

Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund specific risk and the lack of transparency may give fiduciaries pause. In addition, many of the most attractive hedge funds are closed to new investment. Funds of funds resolve these issues by providing investors with diversification across manaager styles and professional oversight of fund operations that can provide the necessary degree of due diligence. In addition, many such funds hold shares in hedge funds otherwise closed to new investment allowing smaller investors access to the most sought-after managers. However, the diversification, oversight and access comes at the cost of a multiplication of fees paid by the investor. One would expect that the information advantage of funds of funds would more than compensate investors for these fees. Unfortunately, individual hedge funds dominate fund of funds on an after-fee return or Sharpe ratio basis. In this paper we argue that the disappointing after-fee performance of some fund of funds may be explained by the nature of this fee arrangement. Fund of funds providers pass on individual hedge fund incentive fees in the form of after-fee returns, although they are in a better position to hedge these fees than are their investors. We examine a new fee arrangement emerging in the industry that may provide better incentives at a lower cost to investors in these funds.

Hedge fund strategies typically generate option-like returns. Linear-factor models using benchmark asset indices have difficulty explaining them. Following the suggestions in Glosten and Jagannathan (1994), this article shows how to model hedge fund returns by focusing on the popular "trend-following" strategy. We use lookback straddles to model trend-following strategies, and show that they can explain trend-following funds' returns better than standard asset indices. Though standard straddles lead to similar empirical results, lookback straddles are theoretically closer to the concept of trend following. Our model should be useful in the design of performance benchmarks for trend-following funds. The last decade has witnessed a growing interest in hedge funds from investors, academics, and regulators. Investors and academics are intrigued by the unconventional performance characteristics in hedge funds, and regulators are concerned with the market impact of their reported speculative activities during major market events. 1 The near bankruptcy of Long-Term Capital Management (LTCM) in 1998 has further heightened attention on hedge fund risk. Because hedge funds are typically organized as private investment vehicles for wealthy individuals and institutional investors, 2 they do not disclose their activities publicly. Hence, little is known about the

This study empirically investigates the performance of Australian hedge funds by extending and modifying . Analysis of hedge funds performance. Journal of Empirical Finance 11, 55-89]. model. This model performs better in explaining Australian hedge fund returns than the traditional Fama and French three-factor model. The results show that Australian hedge fund returns have low correlation with market indexes and also outperform standard market index returns. We also observe that Australian hedge fund returns are positively related to incentive fees and negatively related to management fees. Further, managers do not have any significant market timing skill and market conditions do not significantly influence hedge fund performance.

Using the hedge fund industry as our laboratory setting, we examine whether bank bailout programs initiated in seven countries during the 2007-2009 global financial crisis reduced counterparty risk in the financial system. Hedge funds have extensive and economically significant ties to banking institutions and these links spurred fears of systemic risk among regulators and investors. We find that the rescue of financial institutions offering prime brokerage, custodial and investment advisory services to hedge funds was followed by a reduced probability of hedge fund liquidation in the short term (up to six months). However, only the rescue of custodians reduced hedge fund illiquidity or the ability of funds to meet clients" redemption requests.

The paper argues that the economic imbalances that caused the present crisis should be thought of as the outcome of the interaction of the effects of financial deregulation with the macroeconomic effects of rising inequality. In this sense rising inequality should be regarded as a root cause of the present crisis. We identify four channels by which it has contributed to the crisis. First, rising inequality creates a downward pressure on aggregate demand since it is poorer income groups that have high marginal propensities to consume. Second, international financial deregulation has allowed countries to run larger current account deficits and for longer time periods. Thus, in reaction to potentially stagnant demand two growth models have emerged: a debt-led model and an exportled model. Third, (in the debt-led growth models) higher inequality has led to higher household debt as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages. Fourth, rising inequality has increased the propensity to speculate as richer households tend hold riskier financial assets than other groups. The rise of hedge funds and of subprime derivatives in particular has been linked to rise of the superrich.

The paper examines the investment activities of Swiss National Bank during last years and especially what is the nature of these activities, what is their scope, what are their financial grounds, what possible consequences could they lead to, and why are they so disconcerting for the financial world. The study finds that the Swiss National Bank operates as a quasi-government hedge fund following the global macro investment strategy. In fact the SNB is increasing the Swiss francs in circulation in order to make investments in foreign debt instrument and stocks. The study states that such kind of interventions from the leading central banks in the world in the pricing mechanism of global financial markets can reduce the scope of operations of portfolio managers and turn investing into a constant game of guesswork and tracking the behaviour of certain central banks or juggling with investment assets which actual value is unknown and immeasurable and more impornant - to lead to investment bubbles, financial and economic crises.

We examine the risk characteristics and capital adequacy of hedge funds through the Valueat-Risk approach. Using extensive data on nearly 1,500 hedge funds, we find only 3.7% live and 10.9% dead funds are undercapitalized as of March 2003. Moreover, the undercapitalized funds are relatively small and constitute a tiny fraction of total fund assets in our sample. Cross-sectionally, the variability in fund capitalization is related to size, investment style, age, and management fee. Hedge fund risk and capitalization also display significant time variation. Traditional risk measures like standard deviation or leverage ratios fail to detect these trends. r

The main objective of a hedge strategy is to generate positive returns irrespective of market conditions. This paper presents a classic hedge fund strategy: an investment vehicle whose key objective is to minimize investment risk in an attempt to deliver profits under all market circumstances. The hedge is designed to have minimal correlation with the market and, irrespective of market direction, the fund seeks to generate positive alpha. A significant difference between this model and more traditional hedge fund strategies is that portfolio optimization is based upon the cointegration of prices rather than the correlation of returns.

Using objective measures of investor protections in 170 countries, I establish that the level of investor protection matters for cross-country differences in GDP growth: countries with stronger protections tend to grow faster than those with poor investor protections.

In this paper, we aim to bring together into one common framework various advances in factorbased hedge fund replication. Our replication methodology relies on a set of investable dynamic risk factors extracted from futures contract prices and on an automatic variable and model selection procedure. The methodology is then validated by creating out-of-sample replicating portfolios for the monthly returns of more than 7,000 hedge funds ranging from 2006 to 2012 and under the assumption of transaction costs. Our results suggest that hedge fund replication is on average possible and works best for liquid strategies.

Alternative investment has grown considerably, transforming this industry in the forefront of investment innovation. Despite their public acknowledgment and profound influence in the financial market, there is still relative small understanding about hedge funds strategies style. This paper intends to determine whether stylistic characterization exists across hedge fund strategies, by comparing, for the period of 1998 to 2008, the performance of the EDHEC indices with one of the most representative indices of hedge funds, the CSFB/Tremont index, regarding seven main strategies.

This brief paper provides an example of the use of Altman's Z-Score in evaluating the probability of municipal default. It includes a short discussion of hedge fund strategy with regard to municipal default and advances an argument that political and institutional factors should be taken into account in addition to quantitative metrics when evaluating the investment risk of municipal debt.

Definición de Fondos Buitres. El término, surgido en el ámbito de las finanzas y luego de uso extendido, designa de manera coloquial y peyorativa a fondos privados de inversión de comportamiento altamente especulativo y litigante. Estos fondos compran títulos de deuda externa de países –y excepcionalmente de empresas- que se dirigen o ya entraron en una cesación de pagos, y por ende cotizan a no más del 15% o el 20% de su valor nominal, y luego reclaman el cobro del valor total de esa deuda mediante litigios en tribunales externos a los del país deudor (usualmente los EE.UU. o el Reino Unido). La denominación fondos buitres (en inglés, vulture funds), busca caracterizar el comportamiento de inversores que se abalanzan sobre la deuda de los Estados en crisis tal como las aves carroñeras lo hacen con sus presas a punto de fallecer.

Во всем мире индустрия хедж-фондов является самой динамично развивающейся отраслью коллективных инвестиций, совокупная стоимость активов которой превышает $2 трлн и продолжает неуклонно расти. Среди инвесторов хедж-фондов все чаще встречаются крупные институциональные структуры, а многие страны стремятся создать благоприятные условия для развития этой индустрии на своей территории. В чем же причина их популярности и почему они практически отсутствуют в России?

This paper presents an empirical comparison of the out of sample hedging performance from naïve and minimum variance hedge ratios for the four largest US index exchange traded funds (ETFs). Efficient hedging is important to offset long and short positions on market maker's accounts, particularly imbalances in net creation or redemption demands around the time of dividend payments. Our evaluation of out of sample hedging performance includes aversion to negative skewness and excess kurtosis. The results should be of interest to hedge funds employing tax arbitrage or leveraged long-short equity strategies as well as to ETF market makers.

We present a detailed study of portfolio optimisation based on cointegration, a statistical tool that here exploits a long-run equilibrium relationship between stock prices and an index price. We compare the theoretical and empirical properties of cointegration optimal equity portfolios with those of portfolios optimised on the tracking error variance. From an eleven year out of sample performance analysis we

In my master thesis, I try to understand how illiquidity impacts on the fees asked by manager in the Hedge Fund industry. Conversely with previous works, the relation between High-Water Mark is shown less obvious. I explain it because of other devices, redemption constraints. One of the main achievements of this paper is to provide a characterization of "illiquid asset holding" funds, relating the asset holding with the strategy of the fund and its compensation scheme.

Michel Callon has conceptualised economic actors as constituted of socio-technical agencements: collectives of human beings, technical devices, algorithms, and so on. This paper reports a pilot, partially observational study of a hedge fund, a category of actor in financial markets that is of growing importance but that has so far attracted little attention in economic sociology. It draws on that study, and on interviews with other financial market practitioners, to delineate what is involved in viewing such an actor as made up of an agencement, and discusses the merits of doing so.

We are indebted to the mutual funds for providing access to their detailed data. Also, we are indebted to the Ontario Securities Commission, and in particular Minami Ganaha, Rhonda Goldberg, Chantal Mainville, and Dennis Yanchus, for their help with facilitating data collection.

Shareholder activism by hedge funds has over the past few years become a major corporate governance phenomenon. This paper puts the trend into context. The paper begins by distinguishing the "offensive" form of activism hedge funds engage in from "defensive" interventions "mainstream" institutional investors (e.g. pension funds or mutual funds) undertake. Variables infl uencing the prevalence of offensive shareholder activism are then identifi ed using a heuristic device we call "the market for corporate infl uence". The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the "supply" and "demand" sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The paper brings matters up-to-date by discussing the impact of the recent fi nancial crisis on hedge fund-driven shareholder activism and draws upon the market for corporate infl uence heuristic to predict future trends.

A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as "blank check companies," SPACs have been around for decades. In recent years, they've become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion (Investopedia).

The paper discusses global macro as a strategy which went out of favour after the LTCM debacle. It uses four case studies and despite the draw backs - a small number of experienced managers - concludes that the strategy can offer diversification and hedging in a portfolio.

Risk is a crucial factor for any investor in making all types of financial investments. It is a psychological and mental process of decision making based on an individual’s frame of reference that changes from time to time. This report explores individual investor’s preference for portfolio choices and investigates impacts of risk tolerance and risk perception on their investment decision. An attempt is also made to understand the factors affecting risk appetite of a person.
Primary and secondary research is conducted to gather the data from 100 respondents from Delhi, for this study and it is analyzed that the overall risk perception level of investors is moderate to high and there is no significant relationship between gender and investment choices. This implies that the sample does not prove that a particular gender has a higher or a lower degree of risk tolerance. It is also observed that experience in stock market has a higher significance on the level of risk appetite of a person and as experience increases, the risk-taking capability also increases. The reason for overall moderate-risk perception among these 100 respondents could be the average level of financial awareness and knowledge about markets and finance because 60% of the respondents belong to the age group of 18-40 years and hence it can be said that they have comparatively more knowledge about finance and investment.  Yet, the knowledge about finance and financial market is not sufficient enough to increase their risk-taking capacity.

The credit crunch was most likely viewed as a mixed blessing by many private equity executives. On the one hand, it signalled the end of the most favourable set of economic conditions the private equity industry had ever witnessed: abundant capital, low interest rates, increasing stock market values and a truly amazing willingness amongst banks and other investors to provide

This paper analyzes convertible arbitrage, one of the most successful hedge fund strategies. We start by identifying convertible arbitrage activities. We find convertible bonds to be underpriced at the issuance dates. At the same time, short sales of underlying equity significantly increase. Both effects are stronger and more persistent for equity-like than for debt-like convertibles. Although convertible arbitrage positively affects markets by providing liquidity, we argue that short sales pressures negatively affect both shareholders and existing bondholders. An investigation of the determinants of convertible arbitrage returns shows that, over a one-year period following the issue, equity-like convertibles earn a return that is more than 20 percentage points higher than the return of debt-like convertibles. In recent years the returns from convertible arbitrage have strongly decreased, because the universe of issuers shifted from the issuance of equity-like to debt-like convertibles.

What percentage of their portfolio should investors allocate to hedge funds? The only available answers to the above question are set in a static mean-variance framework, with no explicit accounting for uncertainty on the active manager's ability to generate abnormal return, and usually generate unreasonably high allocations to hedge funds. In this paper, we apply the model introduced in Cvitanić, Lazrak, Martellini and Zapatero (2002b) for optimal investment strategies in the presence of uncertain abnormal returns to a database of hedge funds. We …nd that the presence of model risk signi…cantly decreases an investor's optimal allocation to hedge funds. Another …nding of this paper is that low beta hedge funds may serve as natural substitutes for a signi…cant portion of an investor risk-free asset holdings.

Keputusan Menteri Keuangan Nomor 113/KMK.08/2014 tentang Strategi
Pengelolaan Utang Negara Tahun 2014-2017 juga menyebutkan tentang penerapan
kebijakan hedging sebagai salah satu strategi pengelolaan utang.
Istilah hedging memang tidak asing bagi dunia usaha swasta tetapi untuk
implementasi di kepemerintahan khususnya keuangan negara, hedging adalah konsep
yang baru. Isu kerugian atas kebijakan hedging serta belum memadainya pencatatan atas
pelaporan keuangan transaksi hedging adalah pertimbangan utama penerapan kebijakan
ini. Namun di sisi lain, ada manfaat besar yang dapat diperoleh Pemerintah jika kebijakan
hedging dilaksanakan secara tepat dan akurat

This Article identifies and explores an important gap in bankruptcy theory and policy, with significant implications for the coming wave of major business failures: How to manage information about financially distressed businesses? The paper makes three claims. First, Chapter 11 of the United States Bankruptcy Code plays a unique informational role, as it creates mechanisms to explain a debtor's failure and to promote reinvestment. Second, the information functions performed by this system face internal and external threats. Internally, bankruptcy reorganization increasingly resembles an unregulated securities market, dominated by sophisticated, wealthy investors whose motives and strategies are often highly opaque. Their ability to arbitrage information will have profound effects on business failure. Externally, growing transactional complexity, and a reluctance to subject very large failed businesses-e.g., Bear Stearnsto bankruptcy, threaten to undermine bankruptcy's ability to expose complex and questionable financial practices. Third, these threats to bankruptcy's informationforcing functions will have systemic costs. The Article concludes with several recommendations about how to approach information policy in business failure.

Çalışmanın hazırlanmasında her türlü desteğini esirgemeyen Doç.Dr. İsrafil ZOR'a sonsuz teşekkürlerimi sunarım. Bu çalışma ülkeler bazında hedge fonların performanslarını değerlendirmek, hedge fonların hangi yatırım stratejilerini uyguladıklarını, hangi yatırım stratejisinin uygulamada başarılı hangisinin başarısız olduğunu tespit etmek, hazine bonosu getirileri, piyasa getirileri ve faaliyet süresinin hedge fon getirilerine etkisini incelemek amacıyla yapılmıştır. Bu amaçla Türkiye ve 25 ülkede 1999-2018 yılları arasında en az 3 yıl faaliyet gösteren toplam 2.063 hedge fonun verileri kullanılmıştır. Elde edilen veriler Excel, Stata/MP 15 ve IBM SPSS Statistics 25 programlarında analiz edilmiş, performans, başarı, korelasyon ve panel veri analizleri kullanılmıştır. Çalışmanın birinci bölümü olan giriş bölümünde çalışmanın önemi ve gerekçesine değinilmiş, çalışmanın sınırlılıklarına yer verilmiştir. Çalışmanın ikinci bölümünde yatırım ve yatırım ortamıyla temel konular olan yatırım ve yatırım türleri, yatırımın unsurları, yatırımın beklenen getirisi ve riski, portföy yatırım modelleri, etkin piyasalar hipotezi, temel ve teknik analiz, davranışsal finans konularına yer verilmiştir. Çalışmanın üçüncü bölümünde hedge fonların tanımı ve özellikleri, tarihçesi, yatırım fonlarından farklılıkları, olumlu ve olumsuz yönleri açıklanmış, ülkelerin hedge fon düzenlemelerinden bahsedilmiş, hedge fonların izahnamelerinden ve kurumsal web sayfalarından uygulanan yatırım stratejileri tespit edilmiş, kitaplardan, makalelerden yararlanılarak hedge fonların yatırım stratejileri ve performans ölçüm modelleri açıklanmıştır. Çalışmanın dördüncü bölümünde literatürde yer alan önceki çalışmalar özetlenmiş, gereç ve yönteme değinilmiş, ülkeler bazında hedge fonların performans analizi, yatırım stratejilerinin başarı analizi, hedge fon getirilerine hazine bonosu, piyasa getirileri ve faaliyet süresinin etkisi incelenmiştir. Çalışmanın son bölümünde sonuç ve önerilere yer verilmiştir. Araştırma bulgularında faaliyet süreleri boyunca ABD, Cayman Adaları, Danimarka, Güney Afrika, Mauritius ve Türkiye hedge fonlarının yüksek ortalama getiriye sahip oldukları,

Guy Spier is a Zurich-based investor and founder of Aquamarine Capital’s privately offered investment funds, with assets under management valued at over $250M. He authored The Education of a Value Investor, perhaps the most untraditional book on investing ever written. He explained what a hedge fund does and his “Graham-Buffett-Munger-Pabrai philosophy” for investing and for living. Guy is one of the most global citizens I know. He was born in South Africa, grew up in Israel and Iran; lived in England and the US for school and work, and now Zurich. This episode was an intellectual treat for me, and for listeners as well. Guy not only lives his life in full, but he is so open to helping many others to do the same. He is a treasure.

This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the Caribbean and elsewhere in the Anglo-Saxon world. This article argues that the ultimate reason for this nexus is the common ‘Lockean’ state/society complex of the UK and the US. The analysis of hedge funds as privateers reveals that both benefit at the expense of others, while the geographic regions in which they are based are virtually the same — London and New York/Boston. Furthermore, this article shows that the hedge fund ‘value chain’ is clearly dominated by the US and the UK. Most hedge funds are based in Offshore Financial Centres (OFCs). While this is commonplace, by introducing the OFC-Intensity Ratio we show that the most intensive OFCs are under the sovereignty of the US and the UK.