Risk Measurement of Hedge Funds by Edu Pristine

Author of lecture Risk Measurement of Hedge Funds

Edu Pristine

Customer reviews

Excerpts from the accompanying material

... -engineered and copies by the competitors -Returns are the ultimate and sometimes the only objective. -Risk management is not central to the success of hedge funds. -Regulatory constraints and compliance issues are a drag on the performance and the whole point of a hedge fund is to avoid these issues. -There is little intellectual property involved in the fund and the general partner is the fund. ...

... If by using proper risk management we can truncate the left tail of the return distribution, then it effectively doubles the value of the strategy. ...

... VaR cannot fully capture the entire spectrum of risks that hedge funds exhibit. VaR is purely a statistical tool which measures the magnitude of loss at the 5% tail probability with little or no economic structure underlying its computation – this was developed by OTC derivative dealers to evaluate the risk exposure of a portfolio of derivative securities. ...

... In databases that contain "dead" as well as active funds the impact of survivor ship bias is substantial. Any investor in an hedge fund must be aware of this bias ...

... much or as little in any given day, to go long or short any number of securities with varying degrees of leverage , and to change investment strategies at a moment's notice. This exposes them to dynamic risk exposures which are difficult to quantify since most modern financial economics has much to say regarding static investments but there is no single measure of risk for a dynamic investment strategy.  ...

... e.g., emerging market equities where the up- market beta is 0.16 while the down-market beta is 1.49%. Empirical results suggest the need to include sophisticated analysis of hedge funds which accounts for asymmetric factor exposures, phase-locking behavior, and other nonlinearities that are endemic to high-performance active investment strategies ...

... Another effect of the global financial system is the contagion factor in which a financial crisis in one market gets transmitted to other financial markets. An immediate method of gauging the liquidity risk exposure of a given hedge fund is to examine the autocorrelation coefficients (k) of the fund's monthly returns. ...