Mila Getmansky, Andrew W. Lo and Shauna X. Mei Volume 2, Number 4, Fourth Quarter 2004 We document the empirical properties of a sample of 1,765 funds in the TASS Hedge Fund database from 1977 to 2004 that are no longer active. The TASS sample shows that attrition rates differ significantly across investment styles, from… Read more
Articles
AIRAP – Alternative RAPMs for Alternative Investments
Milind Sharma Volume 2, Number 4, Fourth Quarter2004 This paper highlights the inadequacies of traditional RAPMs (risk-adjusted performance measures) and proposes AIRAP (alternative investments risk-adjusted performance), based on Expected Utility theory, as a RAPM better suited to alternative investments. AIRAP is the implied certain return that a risk-averse investor would trade off for holding risky… Read more
The Dangers of Mechanical Investment Decision-Making: The Case of Hedge Funds
Harry M. Kat Volume 2, Number 4, Fourth Quarter 2004 Over the last 20 years, investors have come to approach investment decision-making in an increasingly mechanical manner. Optimizers are filled up with historical return data and the “optimal” portfolio follows almost automatically. In this paper, we argue that such an approach can be extremely dangerous… Read more
Alternative Investments: CTAs, Hedge Funds, and Funds-of-Funds
Bing Liang Volume 2, Number 4, Fourth Quarter 2004 In this paper, we study alternative investment vehicles such as hedge funds, funds-of-funds, and commodity trading advisors (CTAs) by investigating their performance, risk, and fund characteristics. Considering them as three distinctive investment classes, we study them not only on a stand-alone basis but also on a… Read more
Extracting Portable Alphas from Equity Long/Short Hedge Funds
William Fung and David A. Hsieh Volume 2, Number 4, Fourth Quarter 2004 This paper shows empirically that Equity Long/Short (Equity L/S) hedge funds have significant alpha to both conventional as well as alternative (hedge fund-like) risk factors utilizing hedge fund data from three major data bases. Following the terminology introduced in Fung and Hsieh… Read more
Fees on Fees in Funds of Funds
Stephen J. Brown, William N. Goetzmann and Bing Liang Volume 2, Number 4, Fourth Quarter 2004 Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund-specific risk and the lack of transparency may give fiduciaries pause… Read more
In Search of a Modigliani-Miller Economy
Kay Giesecke and Lisa R. Goldberg Volume 2, Number 3, Third Quarter 2004 The Modigliani-Miller theorem describes conditions under which the value of a firm is independent of its leverage ratio. It is one of the cornerstones of finance. A history of this result along with a modern perspective on its derivation is given in… Read more
Predictability of Long-Term Spinoff Returns
John J. McConnell and Alexei V. Ovtchinnikov Volume 2, Number 3, Third Quarter 2004 Investment strategies of buying and holding recently spun off companies and their parents have received significant attention from the investment community in the recent past. Despite their popularity, the existing evidence on the attractiveness of spinoffs appears piecemeal. In this paper… Read more
Active Risk and Information Ratio
Edward Qian and Ronald Hua Volume 2, Number 3, Third Quarter 2004 One of the underlying assumptions of the Fundamental Law of Active Management is that the active risk of an active investment strategy equates estimated tracking error by a risk model. We show there is an additional source of active risk that is unique… Read more
MaxVaR: Long-Horizon Value at Risk in a Mark-to-Market Environment
Jacob Boudoukh, Matthew Richardson, Richard Stanton and Robert F. Whitelaw Volume 2, Number 3, Third Quarter 2004 The standard VaR approach considers only terminal risk, completely ignoring the path of the portfolio value prior to this final horizon. This assumption is unrealistic interim risk may be critical in a mark-to-market environment because interim values of… Read more