This article presents some new results on an unexplored dataset on hedge fund performance. The results indicate that hedge funds follow strategies that are dramatically different from mutual funds, and support the claim that these strategies are highly dynamic. The article finds five dominant investment styles in hedge funds, which when added to Sharpe’s (1992) asset class factor model can prov...

THE JOURNAL OF ALTERNATIVE INVESTMENTS 1 I n this article, we will review both academic and practitioner research from the standpoint of a hypothetical institutional investor who is looking into whether hedge funds make sense for their portfolio. Surveying the extensive hedge fund literature, it appears that there are six competing conceptual frameworks for how hedge funds should be incorporate...

We examine the role of hedge funds as primary lenders to corporate firms. We investigate both the reasons and the implications of hedge funds’ activities in the primary loan market. We examine the characteristics of firms that borrow from hedge funds and find that borrowers are primarily firms with lower profitability, lesser credit quality, and higher asymmetric information. Our results sugges...

Theory suggests that long/short equity hedge funds’ returns come from long/short as well as directional exposure to the stock market and the fees related to stock loans. Empirical analysis finds persistent net exposures to the spread between small versus large cap stocks in addition to the overall market. Together, these factors account for over 80% of return variation. Additional factors are p...

This paper provides an overview of the most important statistical properties of individual hedge fund returns. We find that the net-of-fees monthly returns of the average individual hedge fund exhibit significant skewness, excess kurtosis, as well as positive first-order serial correlation. The correlations between hedge funds in the same strategy group are of a similar order of magnitude as th...

Theory suggests that long/short equity hedge funds’ returns come from directional as well as spread bets on the stock market. Empirical analysis finds persistent net exposures to the spread between small versus large cap stocks in addition to the overall market. Together, these factors account for more than 80 percent of return variation. Additional factors are price momentum and market activit...

We illustrate the potential of conditional hedge transformations in Web-related applications on the example of PρLog: an extension of logic programming with advanced rule-based programming features for hedge transformations, strategies, and regular constraints.

In this paper we test the idea that hedge funds‟ capacity constraints may play a significant role on the decision of fund families to open a new hedge fund. Our empirical analysis shows that fund families‟ propensity to open new funds increases with degree of capacity constraint faced by existing funds of the families. We argue that hedge fund families face diseconomies of scale because of the ...

The wide acceptance of Hedge Funds by Institutional Investors and Pension Funds has led to an explosive growth in assets under management. These investors are drawn to Hedge Funds due to the seemingly low correlation with traditional investments and the attractive returns. The correlations and market risk (the Beta in the Capital Asset Pricing Model) of Hedge Funds are generally calculated usin...

In this paper we will explain how to perfectly hedge under Heston’s stochastic volatility model with jump to default, which is in itself a generalization of the Merton jump-to-default model and a special case of the Heston model with jumps. The hedging instruments we use to build the hedge will be as usual the stock and the bond, but also the Variance Swap (VS) and a Credit Default Swap (CDS). ...