DOCSLIB.ORG

Hedge Funds: a Dynamic Industry in Transition

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Hedge Funds: a Dynamic Industry in Transition NBER WORKING PAPER SERIES HEDGE FUNDS: A DYNAMIC INDUSTRY IN TRANSITION Mila Getmansky Peter A. Lee Andrew W. Lo Working Paper 21449 http://www.nber.org/papers/w21449 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2015 We thank Vikas Agarwal, George Aragon, Guillermo Baquero, Monica Billio, Keith Black, Ben Branch, Nick Bollen, Stephen Brown, Jayna Cummings, Gregory Feldberg, Mark Flood, Robin Greenwood, David Hsieh, Hossein Kazemi, Bing Liang, Tarun Ramadorai, and two anonymous referees for helpful comments and suggestions. The views and opinions expressed in this article are those of the authors only and do not necessarily represent the views and opinions of any other organizations, any of their affiliates or employees, or any of the individuals acknowledged above. Research support from the MIT Laboratory for Financial Engineering is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w21449.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2015 by Mila Getmansky, Peter A. Lee, and Andrew W. Lo. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Hedge Funds: A Dynamic Industry In Transition Mila Getmansky, Peter A. Lee, and Andrew W. Lo NBER Working Paper No. 21449 August 2015 JEL No. G01,G11,G12,G20,G23,G24 ABSTRACT The hedge-fund industry has grown rapidly over the past two decades, offering investors unique investment opportunities that often reflect more complex risk exposures than those of traditional investments. In this article we present a selective review of the recent academic literature on hedge funds as well as updated empirical results for this industry. Our review is written from several distinct perspectives: the investor's, the portfolio manager's, the regulator's, and the academic's. Each of these perspectives offers a different set of insights into the financial system, and the combination provides surprisingly rich implications for the Efficient Markets Hypothesis, investment management, systemic risk, financial regulation, and other aspects of financial theory and practice. Mila Getmansky Andrew W. Lo Isenberg School of Management MIT Sloan School of Management Room 308C 100 Main Street, E62-618 University of Massachusetts Cambridge, MA 02142 121 Presidents Drive, Amherst, MA 01003 and NBER [email protected] [email protected] Peter A. Lee AlphaSimplex Group, LLC One Cambridge Center Cambridge, MA 02142 [email protected] Contents List of Tables iii List of Figures vii 1 Introduction 1 2 Hedge Fund Characteristics 2 2.1 Fees ........................................ 3 2.2 Leverage...................................... 4 2.3 ShareRestrictions................................. 6 2.4 FundFlowsandCapitalFormation . 7 3 An Overview of Hedge-Fund Return Data 9 3.1 DataSources ................................... 10 3.2 Biases ....................................... 11 3.3 EntriesandExits ................................. 14 3.4 HedgeFundIndexes ............................... 18 4 Investment Performance 20 4.1 BasicPerformanceStudies ............................ 21 4.2 PerformancePersistence ............................. 24 4.3 Timing Ability . 24 4.4 Hedge-FundStyles ................................ 26 5 Illiquidity 32 5.1 Measures of Illiquidity and Return Smoothing . 32 5.2 Illiquidity and Statistical Biases . 35 5.3 Measuring Illiquidity Risk Premia . 36 5.4 The Mean-Variance-Illiquidity Frontier . 37 6 Hedge Fund Risks 39 6.1 VaRandRisk-Shifting .............................. 40 6.2 LinearFactorModels............................... 41 6.3 Limitations of Hedge-Fund Factor Models . 49 6.4 OperationalRisks................................. 51 6.5 RiskManagement................................. 53 6.6 Hedge-Fund Beta Replication . 59 7 The Financial Crisis 61 7.1 Early Warning Signs of the Crisis . 64 7.2 WinnersandLosers................................ 67 7.3 Post-CrisisPerformance ............................. 72 7.4 HedgeFundsandSystemicRisk . .. .. 74 i 8 Implementation Issues for Hedge Fund Investing 78 8.1 The Limits of Mean-Variance Optimization . 79 8.2 Over-Diversification................................ 79 8.3 InvestmentImplications ............................. 81 8.4 An Integrated Hedge-Fund Investment Process . 86 8.5 TheAdaptiveMarketsHypothesis. 96 9 Conclusion 104 A Appendix 105 A.1 LipperTASSFundCategoryDefinitions . 105 A.2 CleaningLipperTASSData ........................... 106 A.3 Glossary...................................... 107 References 110 ii List of Tables 1 Net-of-fee returns for a hypothetical fund of funds charging a 1% fixed fee and a 10% incentive fee and investing an equal amount of capital in two funds, A and B, with both funds charging a 2% fixed fee and a 20% incentive fee, for various realized annual gross-of-fee returns for A and B. Net-of-fee returns are reported as a percent of assets under management (top panel). The bottom panel reports fees as a percentage of net profits of the total gross investment returns generated by A and B. No high-water mark or clawback provisions areassumed..................................... 5 2 Summary statistics for cross-sectionally averaged returns from the Lipper TASS database with no bias adjustments, adjustments for survivorship bias, adjustments for backfill bias, and adjustments for both biases during the sam- ple period from January 1996 through December 2014. For each database sample the number of fund-months, annualized mean, annualized volatility, skewness, kurtosis, maximum drawdown, first-order autocorrelation, and p- value of the Ljung-Box Q-statistic with three lags are reported. 14 3 Statistics for entries and exits of single-manager hedge funds, including num- ber of entries, exits, and funds at the start and end of a given year, attrition rate, average return, and percentage of funds that performed negatively are reported for each year from January 1996 through December 2014. Source: LipperTASSdatabase............................... 16 4 Information about hedge-fund index providers, index family, and the avail- ability of total-industry and category indexes for commonly used monthly, daily, and replication hedge-fund indexes. 19 5 Monthly correlations of the average returns of funds in each hedge-fund style category. Correlations for the 10 main Lipper TASS hedge fund categories, Funds of Funds, and All Single Manager Funds found in the Lipper TASS database from January 1996 through December 2014 are reported. The All Single Manager Funds category includes the funds in all 10 main Lipper TASS categories and any other single-manager funds present in the database (rela- tively few) while excluding funds of funds. Correlations are color-coded with the highest correlations in blue, intermediate correlations in yellow, and the lowestcorrelationsinred. ............................ 26 6 Summary statistics for the returns of the average fund in each Lipper TASS style category and summary statistics for the corresponding CS/DJ Hedge- Fund Index. Number of fund months, annualized mean, annualized volatility, Sharpe ratio, Sortino ratio, skewness, kurtosis, maximum drawdown, corre- lation coefficient with the S&P 500, first-order autocorrelation, and p-value of the Ljung-Box Q-statistic with three lags for the 10 main Lipper TASS hedge fund categories, Funds of Funds, and All Single Manager Funds found in the Lipper TASS database from January 1996 through December 2014 are reported. Sharpe and Sortino ratios are adjusted for the three-month U.S. Treasury Bill rate. The “All Single Manager Funds” category includes the funds in all 10 main Lipper TASS categories and any other single-manager funds present in the database (relatively few) while excluding funds of funds. 28 iii 7 Conditional exposures of average hedge fund category returns to the seven Fung and Hsieh (2001) factors. The exposures for the 10 main Lipper TASS hedge fund categories, Funds of Funds, and All Single Manager Funds found in the Lipper TASS database are based on a multivariate regression with a constant term. Regression outputs that are significant with 95% confidence are indicated by “*” and shown in color (orange for negative and blue for positive). Monthly correlations between hedge fund returns and all seven factors are presented. This analysis spans January 1996 through December 2014......................................... 44 8 Conditional exposures of average hedge fund category returns to four in- vestable factors. The exposures for the 10 main Lipper TASS hedge fund categories, Funds of Funds, and All Single Manager Funds found in the Lipper TASS database are based on a multivariate regression with a constant term. Regression outputs that are significant with 95% confidence are indicated by “*” and shown in color (orange for negative and blue for positive). Monthly correlations between hedge fund returns and all four factors are presented. This analysis spans January 1996 through December 2014. 45 9 Out-of-sample analysis for the
Load more

Recommended publications
  • Artisan Thematic Strategy
    Q2 2020 Artisan Thematic Strategy This material is intended to provide an overview of the Thematic team's investment philosophy and process. Investment in any vehicle managed by the team is subject to further documentation contained in the vehicle's offering materials. This material is not for use by retail investors and may not be reproduced or distributed without Artisan Partners' permission. This material does not constitute an offer or solicitation where such actions are not authorized or lawful. Further limitations on the availability of products or services described herein may be imposed. This material is only intended for investors which meet qualifications as institutional investors as defined in the applicable jurisdiction where this material is received, which includes only Professional Clients or Eligible Counterparties as defined by the Markets in Financial Instruments Directive (MiFID) where this material is issued by APUK or AP Europe. This material is not for use by retail or professional clients and may not be reproduced or distributed without Artisan Partners’ permission. For US institutional investors and MiFID Eligible Counterparties Only—Not for Onward Distribution GIPS Composite Report included in appendix Artisan Partners Important Disclosures These materials are provided solely for use in a private meeting and are intended for informational and discussion purposes only. Investment is subject to further documentation. This document is not a prospectus. Unless expressly stated, it has not otherwise been registered with, or approved by, any regulatory authority in any jurisdiction. This material is for informational purposes only and shall not be construed as investment or tax advice. Prospective investors should consult their financial and tax adviser before making investments in order to determine whether investment will be suitable for them.
    [Show full text]
  • SBAI Annual Report (2017)
    Annual Report 2017 Table of Contents Contents 1. Foreword ............................................................................................................................................. 4 2. SBAI Mission ........................................................................................................................................ 7 3. The Alternative Investment Standards ............................................................................................... 8 Why are the Standards important? .................................................................................................... 8 4. The SBAI Toolbox .............................................................................................................................. 10 5. Overview of SBAI’s Activities in 2017/2018 ...................................................................................... 11 Key Highlights .................................................................................................................................... 11 Rebranding .................................................................................................................................... 11 North American Committee .......................................................................................................... 11 SBAI Toolbox ................................................................................................................................. 12 New SBAI Initiatives .....................................................................................................................
    [Show full text]
  • Hedge Funds Oversight, Report of the Technical Committee Of
    Hedge Funds Oversight Consultation Report TECHNICAL COMMITTEE OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS MARCH 2009 This paper is for public consultation purposes only. It has not been approved for any other purpose by the IOSCO Technical Committee or any of its members. Foreword The IOSCO Technical Committee has published for public comment this consultation report on Hedge Funds Oversight. The Report makes preliminary recommendations of regulatory approaches that may be used to mitigate the regulatory risks posed by hedge funds. The Report will be finalised after consideration of comments received from the public. How to Submit Comments Comments may be submitted by one of the three following methods on or before 30 April 2009. To help us process and review your comments more efficiently, please use only one method. 1. E-mail • Send comments to Greg Tanzer, Secretary General, IOSCO at the following email address: [email protected] • The subject line of your message should indicate “Public Comment on the Hedge Funds Oversight: Consultation Report”. • Please do not submit any attachments as HTML, GIF, TIFF, PIF or EXE files. OR 2. Facsimile Transmission Send a fax for the attention of Greg Tanzer using the following fax number: + 34 (91) 555 93 68. OR 3. Post Send your comment letter to: Greg Tanzer Secretary General IOSCO 2 C / Oquendo 12 28006 Madrid Spain Your comment letter should indicate prominently that it is a “Public Comment on the Hedge Funds Oversight: Consultation Report” Important: All comments will be made available publicly, unless anonymity is specifically requested. Comments will be converted to PDF format and posted on the IOSCO website.
    [Show full text]
  • 2020.12.03 RSIC Meeting Materials
    WILLIAM (BILL) H. HANCOCK, CPA RONALD P. WILDER, PH. D CHAIR VICE-CHAIR 1 PEGGY G. BOYKIN, CPA ALLEN R. GILLESPIE, CFA COMMISSIONER COMMISSIONER WILLIAM (BILL) J. CONDON, JR. JD, MA, CPA REBECCA M. GUNNLAUGSSON, PH. D COMMISSIONER COMMISSIONER EDWARD N. GIOBBE, MBA REYNOLDS WILLIAMS, JD, CFP COMMISSIONER COMMISSIONER _____________________________________________________________________________________ Commission Meeting Agenda Thursday, December 3, 2020 at 9:30 a.m. MEETING PARTICIPANTS WILL APPEAR VIA TELECONFERENCE Teleconference Streaming Via RSIC.SC.GOV RSIC Presentation Center Open for Public Access to Teleconference I. Call to Order and Consent Agenda A. Adoption of Proposed Agenda B. Approval of September 2020 Minutes II. Chair’s Report III. Committee Reports IV. CEO’s Report V. CIO’s Report A. Quarterly Investment Performance Update VI. Strategic Investment Topic Presentation – Rebalancing VII. Chinese Public Company Investment Discussion VIII. Delegated Investment Report IX. Executive Session – Discuss investment matters pursuant to S.C. Code Sections 9-16- 80 and 9-16-320; to discuss personnel matters pursuant to S.C. Code Ann. Section 30-4-70(a)(1); and receive advice from legal counsel pursuant to S.C. Code Section 30-4-70(a)(2). X. Potential Action Resulting from Executive Session XI. Adjournment NOTICE OF PUBLIC MEETING This notice is given to meet the requirements of the S.C. Freedom of Information Act and the Americans with Disabilities Act. Furthermore, this facility is accessible to individuals with disabilities, and special accommodations will be provided if requested in advance. 1201 MAIN STREET, SUITE 1510, COLUMBIA, SC 29201 // (P) 803.737.6885 // (F) 803.737.7070 // WWW.RSIC.SC.GOV 2 AMENDED DRAFT South Carolina Retirement System Investment Commission Meeting Minutes September 10, 2020 9:30 a.m.
    [Show full text]
  • Why Convertible Arbitrage Is a True Market Neutral Strategy
    WHY CONVERTIBLE ARBITRAGE IS A TRUE MARKET NEUTRAL STRATEGY How does convertible arbitrage perform in different markets? Transcript of a video recorded on November 30, 2017. Eli Pars, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-PM, explains that convertible arbitrage has performed well in most equity market environments—and that the strategy has done its best in declining equity markets historically. ELI PARS The nice thing is it tends to perform well in most equity market environments. In a rising market, you benefit from Co-CIO, Head of the net long, the net long embedded in the hedge. So you can make a little bit of money there and you can trade Alternative Strategies and Co-Head of around the volatility. It tends to do a little better in more volatile markets. Convertible Strategies, Senior Co-PM The interesting thing is, historically, it’s often done its best in declining equity markets. Now, sometimes it depends on the nature of the equity market and the nature of the bear market, but if you look back to the early 2000s when the equity market sold off materially, convert arb did really well. Investors made money, made significant money in a lot of cases, when the equity market was down. That wasn’t the case in 2008 when it was more of a financial crisis, but it’s kind of helpful for investors as they look forward and think where the next bear market might be. If to the extent you’re in the camp that you think that ultimately it’ll be an over-valued equity market that corrects similar to what we had in the early 2000s, that could quite possibly be a very nice environment for convert arb.
    [Show full text]
  • Investment Edge® Variable Annuity
    Investment Edge® Variable Annuity May 1, 2017 Variable Annuities: • Are Not a Deposit of Any Bank • Are Not FDIC Insured • Are Not Insured by Any Federal Government Agency • Are Not Guaranteed by Any Bank or Savings Association • May Go Down in Value Issued by AXA Equitable Life Insurance Company. Table of Contents Variable Product Prospectus Page Investment Edge® 15.0 1 Summary Prospectuses Page Label Page Label AXA Premier VIP Trust EQ/PIMCO Global Real Return EQPGRR 1-5 AXA Aggressive Allocation AAA 1-5 EQ/PIMCO Ultra Short Bond EQPUS 1-5 AXA Moderate Allocation AMA 1-5 EQ/Small Company Index EQSCI 1-3 AXA Moderate-Plus Allocation AMPA 1-5 EQ/T. Rowe Price Growth Stock EQTGS 1-4 CharterSM Aggressive Growth CAGR 1-6 Multimanager Technology MMT 1-5 CharterSM Conservative CCON 1-6 CharterSM Growth CGR 1-6 CharterSM Moderate CMOD 1-6 CharterSM Moderate Growth CMGR 1-6 CharterSM Small Cap Growth CSCG 1-5 CharterSM Small Cap Value CSCV 1-5 EQ Advisors Trust 1290 VT Convertible Securities VTCS 1-5 1290 VT DoubleLine Opportunistic Bond VTDO 1-6 1290 VT Energy VTE 1-5 1290 VT Equity Income VTEI 1-4 1290 VT GAMCO Mergers & Acquisitions VTGM 1-5 1290 VT GAMCO Small Company Value VTGSC 1-3 1290 VT High Yield Bond VTHY 1-6 1290 VT Low Volatility Global Equity VTLG 1-4 1290 VT Natural Resources VTNR 1-4 1290 VT Real Estate VTRE 1-5 1290 VT SmartBeta Equity VTSB 1-4 1290 VT Socially Responsible VTSR 1-5 All Asset Growth-Alt 20 EQAA 1-7 AXA/AB Dynamic Moderate Growth AABDMG 1-7 AXA/AB Short Duration Government Bond AABSDGB 1-5 AXA/AB Small Cap Growth
    [Show full text]
  • Hedge Fund Performance During the Internet Bubble Bachelor Thesis Finance
    Hedge fund performance during the Internet bubble Bachelor thesis finance Colby Harmon 6325661 /10070168 Thesis supervisor: V. Malinova 1 Table of content 1. Introduction p. 3 2. Literature reviews of studies on mutual funds and hedge funds p. 5 2.1 Evolution of performance measures p. 5 2.2 Studies on performance of mutual and hedge funds p. 6 3. Deficiencies in peer group averages p. 9 3.1 Data bias when measuring the performance of hedge funds p. 9 3.2 Short history of hedge fund data p. 10 3.3 Choice of weight index p. 10 4. Hedge fund strategies p. 12 4.1 Equity hedge strategies p. 12 4.1.1 Market neutral strategy p. 12 4.2 Relative value strategies p. 12 4.2.1 Fixed income arbitrage p. 12 4.2.2 Convertible arbitrage p. 13 4.3 Event driven strategies p. 13 4.3.1 Distressed securities p. 13 4.3.2 Merger arbitrage p. 14 4.4 Opportunistic strategies p. 14 4.4.1 Global macro p. 14 4.5 Managed futures p. 14 4.5.1 Trend followers p. 15 4.6 Recent performance of different strategies p. 15 5. Data description p. 16 6. Methodology p. 18 6.1 Seven factor model description p. 18 6.2 Hypothesis p. 20 7. Results p. 21 7.1 Results period 1997-2000 p. 21 7.2 Results period 2000-2003 p. 22 8. Discussion of results p. 23 9. Conclusion p. 24 2 1. Introduction A day without Internet today would be cruel and unthinkable.
    [Show full text]
  • 40Actplussm Application for Hedge Funds and Private
    Executive Risk Indemnity Inc. Administrative Offices/Mailing Address: Home Office 82 Hopmeadow Street Wilmington, Delaware 19805-1297 Simsbury, Connecticut 06070-7683 40ACTPLUSSM APPLICATION FOR HEDGE FUNDS AND PRIVATE INVESTMENT FUNDS NOTICE: THE POLICY FOR WHICH THIS APPLICATION IS MADE APPLIES, SUBJECT TO ITS TERMS, ONLY TO “CLAIMS” FIRST MADE DURING THE “POLICY PERIOD,” OR ANY EXTENDED REPORTING PERIOD. THE LIMIT OF LIABILITY AVAILABLE TO PAY DAMAGES OR SETTLEMENTS WILL BE REDUCED, AND MAY BE EXHAUSTED, BY “DEFENSE EXPENSES,” AND “DEFENSE EXPENSES” WILL BE APPLIED AGAINST THE RETENTION. THE UNDERWRITER HAS NO DUTY UNDER THIS POLICY TO DEFEND ANY “CLAIM.” ACCEPTANCE OR RECEIPT BY THE UNDERWRITER OF THIS APPLICATION WILL NOT OBLIGATE THE UNDERWRITER TO ISSUE ANY POLICY OF INSURANCE, NOR PROVIDE REQUESTED COVERAGE FOR ALL ENTITIES LISTED IN THIS APPLICATION OR IN ANY SCHEDULE ATTACHED HERETO. PLEASE READ THE ENTIRE APPLICATION CAREFULLY BEFORE SIGNING. 1. (a) Name of Applicant: Business Address: City: State: ZIP Code: Web site Internet address (if applicable): (b) Name and title of the officer at the principal sponsor or organization for the Applicant designated as the representative to receive all notices from the Underwriter on behalf of all person(s) and entity(ies) proposed for this insurance: 2. (a) SCHEDULE OF PRIVATE FUNDS (Please attach separate sheet if necessary.) Name of Type Total Total General Partner’s Minimum 3(c)7 Fund Structure Date Private (see chart Assets Equity Equity Invest- (Yes/No) (LP, LLC, Opened Fund below) Market ($mm) ($mm) ment etc.) Value ($mm) ($mm) TYPES OF PRIVATE FUNDS Market Neutral Distressed Securities Market Timing Funds of Funds Aggressive Growth Short Selling Emerging Markets Global Macro Merger Arbitrage Income Convertible Arbitrage Other: Form C27429 (08/2012) 1 Catalog No.
    [Show full text]
  • Market Neutral Strategies Attractive for Institutional Investors
    2015 December To Pair Trade, or not to Pair Trade... exploring different views and routes to an equity market neutral portfolio Michelin Stars in the Market Neutral World What makes Market Neutral strategies attractive for institutional Investors This Time, it IS Different A Rationale for Market Neutral Strategies Königsdisziplin The Art of being Market Neutral Market Neutral Strategies The Key to Alpha in any Market Direction www.hedgenordic.com - December 2015 www.hedgenordic.com - December 2015 Contents INTRODUCTION HedgeNordic is the leading media covering the Nordic alternative investment and hedge fund universe. THIS TIME IT IS DIFFERENT CORPORATE EVENTS SAME NAME, DIFFERENT ANIMAL The website brings daily news, research, A RATIONALE FOR EQUITY MARKET NEUTRAL STRATEGIES AS CATALYST FOR ALPHA THE EVOLUTION OF MARKET NEUTRAL STRATEGIES GENERATION analysis and background that is relevant to Nordic hedge fund professionals from the sell and buy side from all tiers. HedgeNordic publishes monthly, quarterly and annual reports on recent developments in her core market as well as special, indepth reports on “hot topics”. HedgeNordic also calculates and publishes the Nordic Hedge Index (NHX) and is host to the Nordic Hedge Award and organizes round tables and seminars. Upcoming Industry & Special Reports: February 2016: 12 40 Real Estate & Infrastructure HEALTH CARE - RAM ACTIVE INVESTMENTS KÖNIGSDISZIPLIN February 2016: A GREAT PLACE TO BE MARKET A BETA NEUTRAL APPROACH TO THE ART OF BEING Managed Futures / Global Macro NEUTRAL EQUITY INVESTING MARKET NEUTRAL March 2016: HedgeNordic Industry Report May 2016: ESG / SRI in the alternative space 42 24 36 20 Contact: MERRANT: Nordic Business Media AB TWO TO TANGO Merrant: THE MARKET NEUTRAL The Editor – My opening lines..
    [Show full text]
  • Arbitrage Pricing Theory∗
    ARBITRAGE PRICING THEORY∗ Gur Huberman Zhenyu Wang† August 15, 2005 Abstract Focusing on asset returns governed by a factor structure, the APT is a one-period model, in which preclusion of arbitrage over static portfolios of these assets leads to a linear relation between the expected return and its covariance with the factors. The APT, however, does not preclude arbitrage over dynamic portfolios. Consequently, applying the model to evaluate managed portfolios contradicts the no-arbitrage spirit of the model. An empirical test of the APT entails a procedure to identify features of the underlying factor structure rather than merely a collection of mean-variance efficient factor portfolios that satisfies the linear relation. Keywords: arbitrage; asset pricing model; factor model. ∗S. N. Durlauf and L. E. Blume, The New Palgrave Dictionary of Economics, forthcoming, Palgrave Macmillan, reproduced with permission of Palgrave Macmillan. This article is taken from the authors’ original manuscript and has not been reviewed or edited. The definitive published version of this extract may be found in the complete The New Palgrave Dictionary of Economics in print and online, forthcoming. †Huberman is at Columbia University. Wang is at the Federal Reserve Bank of New York and the McCombs School of Business in the University of Texas at Austin. The views stated here are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System. Introduction The Arbitrage Pricing Theory (APT) was developed primarily by Ross (1976a, 1976b). It is a one-period model in which every investor believes that the stochastic properties of returns of capital assets are consistent with a factor structure.
    [Show full text]
  • Securitization & Hedge Funds
    SECURITIZATION & HEDGE FUNDS: COLLATERALIZED FUND OBLIGATIONS SECURITIZATION & HEDGE FUNDS: CREATING A MORE EFFICIENT MARKET BY CLARK CHENG, CFA Intangis Funds AUGUST 6, 2002 INTANGIS PAGE 1 SECURITIZATION & HEDGE FUNDS: COLLATERALIZED FUND OBLIGATIONS TABLE OF CONTENTS INTRODUCTION........................................................................................................................................ 3 PROBLEM.................................................................................................................................................... 4 SOLUTION................................................................................................................................................... 5 SECURITIZATION..................................................................................................................................... 5 CASH-FLOW TRANSACTIONS............................................................................................................... 6 MARKET VALUE TRANSACTIONS.......................................................................................................8 ARBITRAGE................................................................................................................................................ 8 FINANCIAL ENGINEERING.................................................................................................................... 8 TRANSPARENCY......................................................................................................................................
    [Show full text]
  • Hedge Fund Standards Board
    Annual Report 2018 Established in 2008, the Standards Board for Alternative Investments (Standards Board or SBAI), (previously known as the Hedge Fund Standards Board (HFSB)) is a standard-setting body for the alternative investment industry and custodian of the Alternative Investment Standards (the Standards). It provides a powerful mechanism for creating a framework of transparency, integrity and good governance to simplify the investment process for managers and investors. The SBAI’s Standards and Guidance facilitate investor due diligence, provide a benchmark for manager practice and complement public policy. The Standards Board is a platform that brings together managers, investors and their peers to share areas of common concern, develop practical, industry-wide solutions and help to improve continuously how the industry operates. 2 Table of Contents Contents 1. Message from the Chairman ............................................................................................................... 5 2. Trustees and Regional Committees .................................................................................................... 8 Board of Trustees ................................................................................................................................ 8 Committees ......................................................................................................................................... 8 3. Key Highlights ...................................................................................................................................
    [Show full text]