Hedge Funds Essay

2498 Words5 Pages

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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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.


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.


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
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