CHAPTER 1: INTRODUCTION
1. INTRODUCTION According to Bing Liang (1998) Hedge fund is private investment partnership in which the general partners make a substantial personal investment. The general partner’s offering memorandum usually allowed for the fund to take long or short position, use leverage and derivatives, invest is concentrated portfolio and move quickly between different market. Hedge fund often takes large risk on speculative strategies, including program trading, short sale, swap and arbitrage. Hedge fund is lightly regulated active investment vehicles with great trading flexibility. They are believed to pursue highly sophisticated investment strategies and promise to deliver returns to their investors that are unaffected
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SCOPE OF STUDY
We use the TASS hedge fund database for our empirical analysis.In this research studies, There are other hedge fund databases, such as Morningstar Altvest, CISDM/MAR, and Hedge Fund Research (HFR). However, academic studies (e.g., Liang (2000)) indicate that the TASS database is probably the most comprehensive database covering hedge funds.
5. SIGNIFICANCE OF RESEARCH
The significant of this research is could identify the performance of hedge fund through proven evidence that can be used by investor to measure which way is profitable for them to generate more profit before making any decision to make an investment. From this study we also can identify the various way or method to determine the risk and return of the hedge fund that can influence the performance of hedge fund return.
6. LIMITATION OF RESEARCH
There are several limitation s while doing my research such as:
a) Due to the private nature, it is difficult to obtain adequate information about the operations of individual hedge funds and reliable summary statistics about the industry as a
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Agarwal, Daniel, and Naik examine how money-flows relate to a fund’s managerial ability, managerial incentives, and managerial flexibility. They find that money-flows chase returns and are significantly higher (lower) for funds that are persistent winners (losers). This is consistent with funds with higher managerial ability, i.e. better and consistent performance in the past, attracting higher flows. Scholz and Wilkens (2003) argue that the performance measure depends on the concrete decision making situation of the investor. This means that a different performance measure is adequate for an investor who invests all his risky assets in just one investment fund than for an investor that splits his risky assets for example in a market index and an investment fund. According to Agarwal, Daniel, and Naik, they document that funds with greater managerial incentives experience more flows, suggesting that investors reward funds where there is better alignment of interests between the manager and the investors. According to Jensen (1968) and Treynor (1965) a performance measure that also takes account of the correlation between the market index and the respective investment fund is adequate. The choice of an adequate performance measure depends on how the returns of an investment fund are distributed. In the case of normally distributed
Over the previous five years, the return of the ProIndex fund have outperformed the S&P 500 index, as the 5-year-return is nearly 3 times than the benchmark and the annualised return is nearly 2 times than the benchmark. It means ProIndex fund has a significant increase in value within that period. However, the ProIndex Fund has a higher standard deviation which means it is more risk than the S&P 500 index. Especially for the annualised standard deviation, it is approximately 10% higher than the benchmark. The correlation coefficient between the ProIndex and benchmark is about 0.65 which means both two variables are positive changing consistently, but there are still some other factors which have impacts on the relationship between two variables as the correlation is less than 1. Furthermore, the higher beta, 1.0132, which is more than 1 and it may be one of the reasons for high risk as well since it is more sensitive to the market change. It means that the ProIndex fund would increase by 1.0132% if the market increased by 1%.
The authors of this article have outlined the purpose, aims, and objectives of the study. It also provides the methods used which is quantitative approach to collect the data, the results, conclusion of the study. It is important that the author should present the essential components of the study in the abstract because the abstract may be the only section that is read by readers to decide if the study is useful or not or to continue reading (Coughlan, Cronin, and Ryan, 2007; Ingham-Broomfield, 2008 p.104; Stockhausen and Conrick, 2002; Nieswiadomy, 2008 p.380).
The author begins the article by defining the concept of modern portfolio theory (MPT). Modern portfolio theory can be defined as a theory on how investors can have optimal portfolios that generate the heights expected return based on a given level of risk. In other words, it is possible to build efficient frontier of optimal portfolios that generate maximum expected return at a given level of risk. The article presents the optimization process in the theory by its inputs and outputs. The first inputs is the expected returns for each security, which can be estimated using historical returns. The second input is the covariance matrix that includes the correlation coefficient, the standard deviation, and the variance of each security. The last input is the constraints in the selection of portfolio such as the turnover of the portfolio or liquidity. On the other hand, the optimization process has to outputs. The first is the efficient frontiers that represent the risk-return trade-off portfolios. The second output is the choice of portfolio that has the risk and return optimization for the investor.
Finance theory does not provide a complete framework for explaining risk management under the fluctuated financial environment in which firm operates. Hence, for corporate managers, they rank risk management as one of their top priorities. One of the strategies to reduce risk is by hedging. This paper will discuss the advantages and disadvantages of hedging risk using financial derivatives.
Now within the rest of this paper you will be finding a few different things getting discussed. Staring it off we will be discussing the articles that we have found to make our arguments and hypotheses. After wrapping up the literature reviews we will be discussing the hypotheses thus continuing onto our variables and indicators. Once we discuss our hypotheses we will be moving onto the research design. The research design will have our general issues, sampling, and methods.
According to Investopedia (Asset Allocation Definition, 2013), asset allocation is an investment strategy that aims to balance risk and reward by distributing a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. There are three main asset classes: equities, fixed-income, cash and cash equivalents; but they all have different levels of risk and return. A prudent investor should be careful in allocating each asset class to his portfolio. Proper asset allocation is a highly debatable subject and is not designed equally for everybody, but is rather based on the desires and needs of the individual investor. This paper discusses the importance of asset allocation, the differences and the proper diversification within the portfolio.
...tructures and investment portfolio.Before venturing in any investment a thorough analysis is required. Setting criteria on what to invest on depends on the understanding of corporate finance and market principals. Derivative markets have in the recent past been accused of fueling the current financial crisis in the world. As stated by the G-20s, financial reforms need to be undertaken in order to save the world’s economy from crumbling.
The following section describes the factors that affect the decision to hedge and then the factors affecting the degree of hedging are considered.
According to World Wealth Management Report in 2015, high net worth individuals distribute their financial asset into a few categories such as alternative investments, fixed income, real estate, equities, and cash/deposits. For alternative investment, it breaks down with structured products, hedge funds, derivatives, foreign currency, commodities and private funds. HNWIs in emerging market and mature Asia which includes Malaysia have high level of concern on wealth-related factors such as assets lasting and the impact on economy activities affect their ability to meet their financial goals (Wilson, 2015).There is a growing demand for wealth management services especially from the younger generation (Baharom, 2013). Younger generation nowadays increases their expectations on wealth
Investing in financial markets can carry risk and long term adverse effects. When deciding to participate in financial markets, an investor must educate themselves in order to financial blunders. At the forefront of financial theory, Modern Portfolio Theory asses the maximum expected portfolio return for a given amount of portfolio risk. Within the framework of Modern Portfolio Theory, an optimal portfolio is constructed on the basis of asset allocation, diversification and rebalancing. In conjunction with diversification, asset allocation is the strategy of dividing a portfolio across various asset classes. Furthermore, optimal diversification involves holding multiple instruments that are not positively correlated. While diversification and asset allocation can improve returns, systematic and unsystematic risks remain inherent in investing. Introduced by Harry Markowitz in 1952, the concept of an efficient frontier identifies an optimal level of diversification and asset
Our understanding and the concept of investment in behavioural finance combines economics and psychology to analyse how and why investors make final decision. As an investor one’s decision to invest is fully influence by different type of attitudes of behavioural and psychological ( Ricciardi & Simon, 2000). Yet, in order to maximize their financial goal, investors must have a good investment planning. Furthermore , to gain a good investment planning , there must be a good decision making among investors. They have to choose the right investment plan I order to manage the resources for different type of investments not only to gain profit wise but also to avoid the risk that occur from investment.
I am currently majoring in Finance Management. Most of the time people think of finance as just managing money. However, finance is needed for so much more! The finance industry deals with starting businesses, developing new products, expanding markets, as well as everyday things like saving for retirement, purchasing a home, and even insurance. The stock market, asset allocation, portfolio analysis, and electronic commerce are all key aspects in finance. In this paper, I will explain how these features play a vital role in the industry, along with the issues that come with these factors.
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.
The nature of research instruments, the sampling plan and the type of data the research design constitutes the blueprint for the collection, the measurement and analysis of data. It aids the researcher in the allocation of his limited resources by posing crucial choices.
According to Mouton, research designs are tailored to address different kinds of research questions. Thus, when attempts are made to classify different kinds of research studies to different design types, they are classified by the kind of research questions they are able to answer. Research designs can be mapped out to the types of research questions (research problem) using four dimensions: 1) empirical versus non-empirical dimension, 2) using primary versus using secondary data, 3) the nature of the data (numerical versus textual data) and 4) the degree of control (structured (laboratory) conditions versus natural field settings)