How Surprising are Returns in 2008? A Review of Hedge Fund Risks
Many investors, expecting absolute returns, were shocked by the dismal performance of various hedge fund investment strategies in 2008. In this issue of the statistical digest, I review the academic literature on hedge fund risks and conduct some simple analyses. I find that many hedge funds, even t...
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2008
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| Online Access: | https://ink.library.smu.edu.sg/bnp_research/9 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1012&context=bnp_research |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | Many investors, expecting absolute returns, were shocked by the dismal performance of various hedge fund investment strategies in 2008. In this issue of the statistical digest, I review the academic literature on hedge fund risks and conduct some simple analyses. I find that many hedge funds, even those without directional equity exposure, have payoffs that resemble those from writing put options on equity indices. A central theme is that their strategies all involve being short liquidity. Therefore, these hedge funds tend to underperform during liquidity crises, which coincide with extreme bear markets. |
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