A Critical Look At The Case For Hedge Funds: Lessons From The Bubble
- Topics:
- Commercial Lending
- Source:
- Ennis Knupp & Associates
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Overview: Hedge funds are supposed to be largely market neutral, meaning their returns exhibit relatively little correlation with those of the market. In this vein, one often hears that they make money in down markets as well as up. To the extent, hedge fund returns are uncorrelated with those of markets and the funds earn a positive risk premium, a hedge fund allocation is generally indicated for efficiently diversified portfolios. This is the essence of the portfolio-theory-based case for investing in hedge funds. In addition, the article critically examines the hedge fund thesis. Diversified hedge fund portfolios also exhibit a surprising degree of variability in factor exposures over time, revealing the limits of hedge fund style diversification and a herding tendency on the funds’ part. It also evaluates the case for institutional investment in hedge funds as a matter of portfolio policy. In this regard, it focuses on the performance and portfolio implications of diversified hedge fund investment.
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Format: PDF | Size: 235KB | Date: Jan 2003 | Pages: 21
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