- For what type of hedge fund is it best to use the risk free rate as a benchmark? 2. Should you use the risk free rate as a benchmark for a fixed income arbitrage strategy? 3. For a fixed income hedge fund would it be best to use the SP 500, the Merril Lynch High Yield Index, or the Lehman Aggregate Bond Index? 4. If the stock market declines and credit spreads widen, are fixed income arbitrage strategies likely to suffer? 5. Does a long-short equity strategy have a higher or lower std deviation/correlation than a equity neutral strategy? 6. Does an emerging mkt arbitrage fund have a high or low beta in up markets? 7. Is it appropriate to use Value at Risk for hedge funds?
- ? 2. No 3. MLHY 4. Yes, t-bills will gain in value and junk will fall…they are short t-bills, long junk so they will suffer 5. higher? 6. low beta in up markets, high in down markets 7. yes, although it assumes normal distribution I believe?
- Long/short. 2. No. 3. Aggregate Bond 4. No. Opposite effect. 5. Higher std dev/ lower corr. 6. High 7. No. Most of these were guesses… how’d I do?
- For what type of hedge fund is it best to use the risk free rate as a benchmark? hmm… regular long/short? 2. Should you use the risk free rate as a benchmark for a fixed income arbitrage strategy? no 3. For a fixed income hedge fund would it be best to use the SP 500, the Merril Lynch High Yield Index, or the Lehman Aggregate Bond Index? I’ll go LEH bond index… are we going to have to use another index once Lehman implodes? 4. If the stock market declines and credit spreads widen, are fixed income arbitrage strategies likely to suffer? yes 5. Does a long-short equity strategy have a higher or lower std deviation/correlation than a equity neutral strategy? guessing higher std dev and lower correlation? 6. Does an emerging mkt arbitrage fund have a high or low beta in up markets? low beta 7. Is it appropriate to use Value at Risk for hedge funds? it better be… i work with HF’s and we use VaR models all the time! Not feeling super confident here. UH OH.
- Market Neutral 2. No, does not reflect the leverage 3. ML High Yield 4. I read this last nite…I think Yes 5. long short has lower std deviation because there is less “style drift” and they use actual shorts where as MN can use puts which don’t have the same downside protection 6. low beta in up and high in low…class loses $$ 7. No, too many strategy changes make the measure virtually useless for HF, plus assumes normal distribution in the left tail. by definition HF are outliers
- None? 2. No - because it does not capture the high leverage? 3. Lehman 4. Yes 5. Higher 6. High? 7. Nope - since it assumes a normal distribution. Most of this was random - please tell me these questions are none LOS
Answers: 1. Equity Neutral 2. No 3. Merrill Lynch HY 4. Yes - typical fixed income arb is short treasuries and long lower credit so when market declines they will go down as well 5. Long Short has higher std dev and higher correlation to equity markets than an equity neutral or risk arb funds. This is because long short is net long and has more exposure to the equity market. 6. Low Beta up markets, High Beta down mkts 7. No, VAR assumes normal distribution and is computed assuming risks are addititve when they are in fact multiplicative and non-normal for hedge funds.
- Equity 2. No 3. Merril lynch 4. Yes 5. Higher 6. low in up markets, high in down markets 7. yes…tho it has its limitations
serf…unfortunately it is…check readings 53+54…i just reviewed myself
- Market Neutral 2. No because it’s leveraged 3. S&P 500 4. Heck yes, think LTCM 5. Not sure. Going to guess higher std dev and lower correlation. 6. Low beta in up market, high beta in down market 7. No but I don’t remember exactly why. I think it is hard to measure the VAR w/ hedge funds.
cdawg12 Wrote: ------------------------------------------------------- > Answers: > > 1. Equity Neutral > 2. No > 3. Merrill Lynch HY > 4. Yes - typical fixed income arb is short > treasuries and long lower credit so when market > declines they will go down as well > 5. Long Short has higher std dev and higher > correlation to equity markets than an equity > neutral or risk arb funds. This is because long > short is net long and has more exposure to the > equity market. > 6. Low Beta up markets, High Beta down mkts > 7. No, VAR assumes normal distribution and is > computed assuming risks are addititve when they > are in fact multiplicative and non-normal for > hedge funds. Damn! I got smoked on those. 1/7!
Thanks. this is a good list. What else do you need to know for hedge fund?
5/7…although I did say that Var assumes normal distribution…although I still thought it was appropriate
Yeh, Value at risk seems to be better than max drawdown though it seems to have its limitations… I’m not sure that if one could say for sure if its good or not by itself though it would be easier to have a definitive answer if the question asks its merits/demerits relative to some other method(s).