This paper examines the causes and consequences of hedge fund activism. Hedge funds target profitable and healthy firms, with above-average cash holdings. The target firms earn significantly higher abnormal stock returns around the initial 13D filing date than a sample of control firm. However, they do not show improvements in accounting performances in the year after the initial purchase. Inst...

In [13], an algebraic approach to the natural structure of domains of linguistic variables was introduced. In this approach, every linguistic domain can be interpreted as an algebraic structure called a hedge algebra. In this paper, a refinement structure of hedge algebras based on free distributive lattices generated by linguistic hedge operations will be examined in order to model structure o...

THE JOURNAL OF ALTERNATIVE INVESTMENTS 9 I t is now well established that the construction of optimal hedge fund portfolios requires techniques that reach well beyond traditional mean variance analysis. For example, Brooks and Kat [2002] demonstrate that various hedge fund strategies have more downside than upside risk—returns exhibit negative skew and excess kurtosis. Lo [2001] and Anson [2002...

Over the recent past, stylized facts have not yielded a synthesis regarding the predictability of returns for alternative investment assets such as hedge funds. Recent studies on alternative asset return predictability have added to the ambiguity. These studies suggest that classification prediction methods may dominate more traditional return-level prediction methodology. This paper examines t...

Although risk management has been a well-plowed field in financial modeling for more than two decades, traditional risk management tools such as mean–variance analysis, beta, and Value-at-Risk do not capture many of the risk exposures of hedge-fund investments. In this article, I review several unique aspects of risk management for hedge funds—survivorship bias, dynamic risk analytics, liquidit...

Theoretical research predicted that firms with convex tax schedules would hedge to minimize expected taxes. However, previous empirical research did not detect a relationship between derivative use and tax losses carry forward, which contribute to tax schedule convexity. This study aims to show that the tax incentive to hedge depends on tax losses carry forward and the ability of the firm to ca...

All hedge funds are not created equal. A poorly chosen portfolio of hedge funds can produce disappointing results. All fund of funds managers are not created equal, either. A poor choice of fund of funds managers can yield disappointing results. This article is designed to outline the value proposition of a fund of hedge funds operation. We conclude that fund of funds add value primarily throug...

This paper examines a large, nearly universal sample of hedge fund activism between January 1, 2003 and December 31, 2005. Hedge fund activism is when a hedge fund files a 13D filing after taking an initial stake of 5 percent or more in the company, and clearly states in the filing’s “purpose” section that it intends to proactively influence management’s future decisions. We find that hedge fun...

We develop a model of hedge fund returns, which reflect the contractual relationships between a hedge fund, its investors and its prime brokers. These relationships are modelled as short option positions held by the hedge fund, wherein the “funding option” reflects the short option position with prime brokers and the “redemption option” reflects the short option position with the investors. Giv...

Hedge funds have gained popularity for increasing investment returns. We focus on the role of this asset category for longterm investors, with attention to rebalancing a portfolio of diversified assets. An investor must seek out securities with low correlations to traditional assets to maximize asset growth. Current hedge fund returns, as measured by average performance, show dependencies with ...